RISK (IN INDUSTRIAL FINANCING). — It deserves special mention because it dominates the fundamental phenomenon of the economy, namely the formation of savings (v.) and their transformation into productive capital.
With its increasing frequency and gravity, it in fact determines the predominance of consumption for enjoyment over consumption for saving; and in the latter, the preference for speculative investments and those with short or very short terms, as opposed to industrial investments which are always long-term but on which the security of employment and the spread of prosperity essentially depend.
Risk in industrial financing presents three fundamental aspects: investment risk, i.e., the partial or total loss of capital due to the insolvency of companies and radical changes in production systems or consumer tastes; immobilization risk, which prevents the recovery without loss, when necessary, of the availability of invested capital; depreciation risk, the most feared and the most certain, which accompanies capital, so that once disinvested it no longer purchases what it did at the time of investment.
It can be said that every advance in economic-financial technique directly or indirectly pursues the goal of eliminating or reducing one or another of these risks, especially by focusing on the insurance-based distribution of risk (savings banks, land and building credit institutions, securities companies, holdings, trustees, and the like), and on the perfection and agility of the securities market (stock exchanges, commodity exchanges, marketability of securities). Against depreciation risk, technique knows no specific remedy: because monetary depreciation (v.) is a complex phenomenon that must be countered at its distant causes: unproductive labor, interest (v.) on loans, and monetary disorder.
The numerous and incessant attempts to eliminate or reduce risk in industrial financing must therefore rely not only on improvements in economic-financial technique but also on a broad moral commitment that addresses the reform of customs, with a view to greater rationality in economic activities and more evident and practical economic solidarity among the nations of the world. The order and tranquility that would follow, together with the seriousness of labor, would create a favorable climate for the maximum formation of savings, largely transformable into new tools of labor and new wealth for humanity.