has been brought definitely within range of practical politics and proved both practicable and expedient by the bold statesmanship of Soviet Russia. With Canton speaking in such tones, Peking, for obvious political reasons, cannot afford to lag behind. The result is that each tries to outdo the other in the gentle art of embarrassing the foreign Powers. What wonder that Canton's seizure of the British concession at Hankow has been followed by Peking's suggestion that the Powers surrender the concession at Tientsin? The Powers, caught between two fires, seem at a loss to know what should be done. Baron Shidehara, Japan's Foreign Minister, asked by Peking to negotiate for the revision of the Chino-Japanese treaty on the basis of equality, replied that his Government is "ready to enter into negotiations for the revision of the tariffs and of the commercial articles of the treaty of 1896". "Nor does the Japanese Government,” he added, "intend to limit the scope of negotiations to these matters,' but it "is willing to consider sympathetically the wishes of the Chinese Government for a more extensive revision of treaty provisions." This undoubtedly will be Japan's attitude whether she deals with Peking or with the Nationalist Government. It is in line with a resolution offered by Representative Porter in the House of Representatives on January 5, and in the main, coincides with the policy outlined in Secretary Kellogg's statement of January 27. Japan, in deference to the Washington Treaty of 1922, would settle the question of surtaxes at a conference of the signatory Powers, but on the more fundamental matters such as tariff autonomy and extraterritoriality she does not feel herself bound to take joint action with other nations. It is reported that Tokyo has already started "conversations" with both Peking and Canton, anticipating that the two will eventually unite. Having recognized Soviet Russia, Japan should have no fear in dealing with Canton, whether its color be "pink" or "red". Is it not possible that the "red" professions of the Nationalists are just a gesture, meant to scare the Powers into making concessions, and that they, when placed in a responsible position, will prove themselves ready to deal reasonably with any Power which is itself reasonable? Who knows? SOME INTERNATIONAL ASPECTS OF THE STOCK EXCHANGE BY E. H. H. SIMMONS President, New York Stock Exchange THE need of organized security markets dates back to the times when the needs for capital outran the ability of individuals or single institutions to provide it. Not unnaturally, this experience occurred first in respect to Government debts. Prior to the close of the seventeenth century, European nations had been financed out of the purses of their sovereigns, or by the individual borrowing power of these sovereigns with the large capitalists of the day. The frequent recurrence of European wars, however, tended in England and other nations to increase the financial requirements of the State to such an extent that a method had to be devised for obtaining the large needed sums, not from a few individuals however wealthy, but from the entire public. Due to this transition in the method of public finance, national debts were created, security certificates gradually came into being, and organized markets for the purchase and sale of these certificates gradually evolved. In at least the leading nations of the present time, including the United States, the first function of the stock exchange was consequently to provide a market for the obligations of the home government. Until the second quarter of the nineteenth century, this service rendered to their respective States by stock exchanges of both sides of the Atlantic constituted not only their earliest but also by far their principal function. The use of the stock exchange to market and distribute securities representing private business enterprise was first resorted to when the steam railway attained popularity. Before the coming of steam transportation, business enterprise was as a rule conducted in small units and usually by individuals and partnerships rather than by corporations. It remained for the early steam railway companies, with their huge initial requirements for capi tal, to inaugurate a second function of the exchanges-namely the marketing and distribution among investors of the securities of private business corporations. In this respect too, there is a close parallelism in the historical development of the New York security market and the similar markets in London, Paris and other important Continental cities. But in the field of private business, steam railroading did not long remain the sole form of enterprise which, owing to a continual need for new capital, sought and obtained recognition on the stock exchanges. One effect of the new facilities provided by the early railroad systems here and abroad was to place within easy access to the world's markets large mineral deposits whose exploitation on a large scale had until this time been practically impossible. As a result coal and oil shares made their appearance on the stock exchanges about the middle of the nineteenth century, to be followed by other similar corporate securities representing the exploitation of other raw materials, and their fabrication into finished goods. The exact form which this evolution took in any given country depended necessarily on the country itself. With the enormous natural resources of the United States suddenly opened as a field for business exploitation, obviously it is not surprising that the addition to the list of the New York Stock Exchange of securities representing domestic business enterprises has not yet shown any important signs of diminishing. In fact, a vastly greater amount of securities came into the New York Stock Exchange during 1925 from American industrial enterprises, than from any other important source. With certain of the European stock exchanges, however, no such large scale exploitation of domestic resources was possible, and in consequence the exact character of the service rendered by these markets has taken a somewhat different turn from what has been the case in America. II The coming of the industrial revolution led in every modern country to the sudden creation of amounts of investable capital which had never existed to anything like the same extent before. Through what channels and into what enterprises this capital subsequently flowed has varied in each country according to its particular economic circumstances. Naturally enough, as long as attractive opportunities for capital existed at home, the tendency for capital to cross the national boundary lines was small. In this particular respect, however, there has been the widest divergence of experience between the large capital markets of the modern world, as a glance at the list of securities dealt in on the leading stock exchanges quickly indicates. As long as a century ago, British capital was being attracted to the Continent by government loans and other early forms of investment. While England accumulated vast amounts of capital in the nineteenth century, owing to her having initiated the industrial revolution, there was not found in Great Britain itself a satisfactory outlet for all these new funds. An inevitable result of this situation was that England became an international creditor country on a large scale. Denied not only the opportunity of increase but perhaps even the opportunity of survival in England itself, British capital flowed out to the far corners of the world. The extensive British colonies already existing provided a field for the placement of a good part of it. Railways were constructed in Canada and in India, and as time went on not only the financing of colonial governments but also of the business enterprises of the colonists themselves was undertaken by the great London market. In addition vast sums were invested by the British in American railways, which served to bring the vast actual and potential agricultural production of this country quickly and cheaply to our Atlantic seaboard, for shipment to England and other countries which were no longer able from their own resources to feed their rapidly mounting populations. A similar process led to the development of the Argentine and other South American railway systems by British capital. The British instinct for exploration of new and unknown lands fitted in excellently with the British national surplus of capital seeking investment, with the result that in the nineteenth century British finance literally took the whole world for its province. A somewhat similar evolution occurred in France, although on a smaller and more conservative scale and beginning at a somewhat later period. The French investor, however, as a rule proved unwilling to go so far afield for his investments as the British. The favorite French foreign investment undoubtedly consisted of the government obligations of European countriesa field which French diplomacy as well as French surplus funds rapidly developed. In addition to its well known and enormous investments in Russia, the Paris capital market before the War dealt in the obligations of a wide variety of European national and municipal governments, as well as many foreign business enterprises in which the larger London financial centre had already blazed the trail. To a lesser extent the same tendency toward capital saturation at home and the consequent international flow of funds was observable in the other countries of Europe. Some of these financial centres, as for instance Amsterdam, played a large part in financing the requirements of American business development. It is consequently true that during the nineteenth century capital became an international commodity which, due to the existence of stock exchange organizations practically all over the world, could flow readily and inexpensively into enterprise at great distances. European countries became in this way international creditors on balance. Their requirements for food and other raw materials from the newer countries of the Western hemisphere could be settled for by the constantly accruing coupon and dividend payments on the securities in the new Western nations which they held. Indeed the entire population of Europe came, during the course of a few generations, to be adjusted in accordance with this principle, and the foreign national incomes from outside investments came to be depended upon to feed the home populations of European countries. III The experience of the European capital lenders in the last century, outlined above, is of interest to Americans today largely because of the sharp contrast which it affords to contemporary economic conditions in this country. Until the opening of the |