24 
LAND fe? WATER 
October 31, 1918 
Protecting the Investor: By Hartley Withers 
INVESTMENT is — or ought to be — a very simple 
matter in war time to anyone who has something to 
invest. War Savings 'Certificates are the cheapest, for 
their quality, in the market for those who have not 
already got their full quota of 500 ; after that, National 
War Bonds are as good as anybody can desire, yielding well 
over 5 per cent., with a nice premium on redemption and a 
valuable option attached of conversion into War Loan if and 
when its price makes the change attractive. These two 
securities are the only channels by which the real investor, 
who does not want to be bothered with short-lived stuff like 
Treasury Bills, can pour his money straight irtto the trenches 
in support of the men who are fighting for us. By 1 buying 
any other stock, bond, or share, he hands his money over 
to some one who may or may not put it into victory. Only 
by taking securities that the Government is now offering 
direct for sale can he be sure that his money will go into the 
- firing line. And yet one still hears of people who "don't 
want any more War Bonds because they think they've got 
enough of them, and would rather have something else 
now." Very likely there are some people at the front who 
think they have had enough German shells and machine-gun 
fire, and would like to have something else. But they do 
not for that reason go to their CO. and ask to be sent home. 
We at home, from whom such a very different effort is asked 
— merely subscribing to a perfect investment on highly 
favourable terms — might surely imitate their staying power 
to the very feeble extent that is open to us. 
Simple as the investment problem is now, it will become 
very complicated when the war is over, "because the real and 
unmistakable sign that the war is, from a financial point of 
view, over, will be the cessation of borrowing by the Govern- 
ment, and the beginning of paying our way out of revenue, 
and redeeming debt instead of adding to it. In other words, 
the Government, instead of providing a beautiful security 
into which all patriotic investors ought to put every available 
shilling, will be repaying debtholders with money gathered 
from taxpayers, and the old difficult ies- that used to beset 
the investor will be with us again. Most of those difficulties 
arose out of the ignorance, greed, and credulity of tlie investor, 
who too often expected to be provided with a perfectly safe 
security, a high rate of interest, and a certainty of improve,- 
ment in capital value, and the assiduity with which the 
third-rate hangers on of our financial organisation cultivated 
and battened on these qualities. It is all important, for the 
quickness and completeness of our after-war recovery, in 
finance, industry, and commerce, that our financial machinery 
shall be somehow improved, so that the investor shall have 
fewer traps set for .him, and shall have the way made more 
clear for him in the direction of sound investments. In old 
days it too often happened that people who did not want 
to gamble at all, but were honestly anxious to find "a genuine 
investment were disgusted by the whole business through 
an imfortunate experience, having put their money into the 
wrong thing, and lost it, and then hastily jumped to the 
quite incorrect conclusion that the whole City was nothing 
but a den of thieves, and that the best thing to be done with 
money was to spend it. This is just the spirit that we shall 
want to discourage. The provision of real capital for the 
use of industry can only be carried out by saving. In war 
time, saving was necessary so that the goods and services 
needed for the Army and Navy could be turned out instead 
of goods and services for the equipment and comfort of the 
consumer ; in peace time, saving will be necessary so that 
goods and services required for the equipment of industry 
on a peace basis can be improved and perfected, and so that 
goods and services can be sold to foreigners to pay off our 
foreign debts. We want to make saving attractive and to 
keep it, as far as possible, free from dangers arising from 
swindles and from the pitfalls that used to beset it. Some 
people see a remedy for most of our social difficulties in high 
wages for the wage-earners, accompanied by a development 
in them of the saving habit so that they may, by becoming 
capitaHsts themselves, see economic problems from the 
point of view both of capitalist and worker. Certainly this 
is a nice ideal, and we want to see this country a place in 
which every capitalist is a worker and every worker is a 
capitalist. But it would be highly dangerous to encourage 
the worker to save and then expose his savings to 
the risks that used to be attached to the process of 
investment. 
It will take a long time to get this matter right. In so far 
as investors are themselves to blame for the losses that 
they have borne, nothing but the slow and tedious business 
of education can work a real remedy ; and, unfortunately, 
most grown-up people are obsessed by a delusion that, after 
leaving school, they are no longer concerned with education, 
and have no more to learn. But at the other end of the 
stick — the provision of a better machinery of finance — there 
are indications of movements in the right direction. The 
Stock Exchange has been doing a good deal of thinking in 
the quiet times that it passed through during the earlier 
part of the war period, and some of its members have pen- , 
dered the problem of the reform of internal weaknesses. 
These have been due chiefly to the diversity of interest 
between the proprietor and the members. The Stock 
Exchange is a proprietary club, the owners of which (who 
must be members) earn a revenue from the entrance fees 
and subscriptions of the members. It is thus to their interest 
that ,the members shdll be as numerous as possible, and the 
consequerfce has been in the past that the standard of finan- 
cial strength required of those who sought entrance to the 
"House" was not as high as it might have been — not nearly 
as high as it was in New York or in Paris. 
" Wild Cat " Finance 
From this cause, however, losses on the part of the investing 
public were comparatively small. A much more important 
cause of them was the freedom with which all sorts'of doubtful 
enterprises could be offered for subscription to the ignorant 
public, and the question that has to be solved is how far, 
if at all, this freedom should be restricted by reform of the 
company laws, and, if not at all, how far the machinery of 
finance can itself provide some safer guide to the public in 
the matter of investment. As to drawing tighter the legal 
restrictions imposed on the action of company promoters 
and increasing the penalties attached to any breach of them, 
there is not much hope that such action would be really 
effective. Acts of Parliament can do very little except 
express reforms that have already been arrived at by public 
opinion. Unless the receptive soil is there, the scattering 
of legal seed is generally useless. If people want gambling 
ventures and other people want to supply them, the supply will 
go on above ground or underground, whatever the law may say. 
The law would almost certainly be made much too drastic by 
any House of Commons that we are likely to see in these 
days. It would probably assume that all gambling is wicked, 
which is absurd, and would very likely restrict genuine 
enterprise of a speculative kind, without which econcmic 
progress is impossible. .What is needed is not to make 
speculation impossible, but to make it easier for the genuine 
investor to find real investments, and not be misled into 
speculations when he does not want them. 
If, then, the law fails, is there a way round ? Is it possible 
for private enterprise to provide a machine by which the 
public may be sure, at least, of honesty and good intentions 
behind any securities issued under its auspices ? Hitherto 
many members of the public have judged, consciously or 
unconsciously, concerning the merits of an issue from the 
amount of space that its advertisements have occupied in 
the pages of the Press. It need hardly be said that this is 
not really a good test. . There are, of course, already issuing 
houses in the City which have a high reputation for the 
soundness of the securities that they offer to the public. 
But their names are only known to folk who are more or less 
familiar with the facts of the world of finance, and it is the 
really ignorant investor whose protection it is most desirable 
to secure. Moreover," these high and mighty institutions, 
naturally enough, preserve their high mightiness by confining 
themselves chiefly to Government loans and the issues of 
first-class municipalities and railways ; and it is industrial 
enterprise that we want to foster. There has lately been a 
movement among provincial stockbrokers, who think they 
can do better for the investor than their London rivals, in 
the direction of an institution which shall give really careful 
and expert attention to the preparation of ventures for the 
public, and shall secure that anything brought out under its 
hall-mark shall be genuine. Here, perhaps, we may find the 
germ of what we want, for if such an institution operated 
with success, London woxild be almost certain to join the 
movement or make one of its own. Or it may be that more 
active participation by the great bankers in the business of 
industrial issues may do what is wanted, though any such 
development would require great caution. A great field lies 
open to the sower, if the right one can be found. 
