Mercantile nations have always employed large funds in overseas trade. But the practice of foreign investment, as we know it now, is a very modern contrivance, a very unstable one, and only suited to peculiar circumstances. An old country can in this way develop a new one at a time when the latter could not possibly do so with its own resources alone; the arrangement may be mutually advantageous, and out of abundant profits the lender may hope to be repaid. But the position cannot be reversed. If European bonds are issued in America on the analogy of the American bonds issued in Europe during the nineteenth century, the analogy will be a false one; because, taken in the aggregate, there is no natural increase, no _real_ sinking fund, out of which they can be repaid. The interest will be furnished out of new loans, so long as these are obtainable, and the financial structure will mount always higher, until it is not worth while to maintain any longer the illusion that it has foundations. The unwillingness of American investors to buy European bonds is based on common sense. At the end of 1919 I advocated (in _The Economic Consequences of the Peace_) a reconstruction loan from America to Europe, conditioned, however, on Europe’s putting her own house in order. In the past two years America, in spite of European complaints to the contrary, has, in fact, made _very large_ loans, much larger than the sum I contemplated, though not mainly in the form of regular, dollar–bond issues. No particular conditions were attached to these loans, and much of the money has been lost. Though wasted in part, they have helped Europe through the critical days of the post–Armistice period. But a continuance of them cannot provide a solution for the existing disequilibrium in the balance of indebtedness.