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TOPICAL
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Publication on War Debts & Gold Crisis
by Ivy Lee &
AsHTTP/1.1 100 Continue
sociates
NO 112
New York City
March 4th 1932
‘Public
sentiment’ is everything. With public sentiment nothing can fail;
without it nothing can succeed. Consequently he who molds public
sentiment goes deeper than he who statutes or pronounces decisions. He makes statutes and decisions possible or impossible
to be executed.” ABRAHAM LINCOLN in first
joint debate at Ottawa, Ill., with Stephen A. Douglas, August 21,1858.
An address delivered at DePauw University, Greencastle, Indiana, February 21,
1932.
By
IVY LEE
This is a plea for realistic treatment of the problem of war debts and
reparations. Such realistic
approach will necessitate detachment from prevalent American political
sentiment. But no considerations
of political sentiment should deter us from making an effort calmly to analyse
the stubborn facts. The
inter-relationship of debts and reparations may be seen if we analyse the
conditions under which debts and reparations, however disagreeable they may be
or however difficult it may be for us to adjust ourselves to them.
Let us
question, first of all, the idea that there is no essential connection between
inter-allied debts and German reparations. When President Hoover proposed, last June, a moratorium on all
inter-governmental debts, he recognized the fact of this inter-relationship,
no matter how definitely he stated that the payment of reparations is a
strictly European problem in which we are not involved. The fact which he recognized was that, unless Germany was freed
immediately from the necessity of making reparations payments for at least one
year, there would be instant collapse of the whole German credit structure
with most serious results to us. He
also recognized the utter impracticability of absolving Germany from her
immediate obligations without corresponding absolution of the Allies from
making payments on inter-governmental debts. The inter relationship of debts and reparations may be seen if we
analyse the conditions under which debts and reparations developed.
ORIGIN OF WAR DEBTS
In
nearly all previous wars, rich nations had financed their allies by subsidies.
At the outset of the World War, however, England established
the plan of making loans instead of subsidies to her Allies, largely for the
reason that by such process she could exercise control over her Allies in the
making of their purchases.
We
followed in England’s train. After
we entered the war, the Allies were permitted to borrow no more American money
in the open market. In fact the
whole capital market of the United States was absorbed by Liberty bond issues.
England was in dire need of increasing quantities of war
supplies which we were alone in a position to furnish. The other Allies were frantically calling for supplies such as England
had been furnishing. But
England’s financial tether in this country was about at an end. The Allies, likewise, had no foreign exchange available with
which to make purchases in England. We,
accordingly, loaned to England a total of $4,250,000,000, every dollar of
which we stipulated should be expended in the United States. We loaned neither to England nor to any of the other Allies, money
which they could expend elsewhere.
Through
its control of loans, our Government was able to maintain a rigid oversight
upon Allied purchases made in this country. All such purchases were made at war-time prices, resulting in huge
profits to our manufacturers and in high prices to our farmers.
During
this period, when we were lending England $4,250,000,000, England in turn
loaned to her Allies the sum of $3,750,000,000. Thus, some 85 per cent of the money we loaned to England was, in
effect, for the purpose of enabling England to finance her Allies, who were at
that moment our own. At the end
of the war, England was owed by her Allies a total of about $8,000,000,000,
while she owed us little over half that sum or $4,250,000.000.
WAR
LOANS NON-PRODUCTIVE
Ordinarily,
international loans are made for productive purposes, for the financing of
public works or industrial enterprises. The
continually recurring wealth produced from them makes possible payment of
interest and amortization of principal upon such loans. But war loans were made for purposes of destruction.
They did not, with unimportant exceptions, represent productive
investments; they were and still are of no more value productively than if
they had been taken out to sea and sunk in mid-ocean.
Take another phase
of the subject: It cannot be doubted that it was contemplated, when these
loans were made, that the Allies would eventually, as a result of victory, be
able to collect from Germany the money necessary to repay us. Certain it is that, had the Allies contemplated the possibility that
they could not collect from a defeated Germany the sums necessary for such
repayment, they would have stipulated such a condition in borrowing the money,
and there is no doubt but that we would have agreed to it.
Numerous citations could be made from utterances by leaders in the Senate and
House at the time these advances were made which show that practically
everyone considered these loans as America’s contribution to the prosecution
of the war. Doubt was indeed expressed in the Senate and House as to
whether these loans would be repaid, but indifference was declared by both
Democrats and Republicans as to their eventual repayment, and these
declarations of indifference were never seriously challenged.
In
the fevered psychology of that moment, hard bargains were not being driven
between Allies. Let us suppose,
for the sake of argument, that Germany had been the victor and that the
Allies, along with ourselves, had been compelled to pay a huge indemnity to
Germany. Is it conceivable, then, that we would regard these loans as
in the light of ordinary commercial investments and insist upon their
repayment to us? Let us suppose
that the war had resulted in a stalemate, and that all questions of
indemnities and reparations had been waived: is it thinkable, then, that while
agreeing that our enemies should pay no reparations to us, we should require
our Allies to repay every cent of the cost of the supplies we had furnished to
them for carrying on the struggle?
IF
GERMANY DOESN’T PAY
If as a
good many people believe it should
develop that Germany either cannot or will not pay any further reparations,
the victorious Allies, while receiving nothing whatever from defeated Germany,
will yet be compelled, in settling their debts to us, to pay to the United
States, over a period of nearly two generations, the sum of approximately
$250,000,000 annually. From a
strictly financial point of view, would this not place the Allies in exactly
the same position, at least measurably, as if they had been defeated in the
war and had been compelled to pay an annual indemnity of that amount?
If
it be admitted that repayment of the interallied debts were in any sense even
morally subject to the results of the war, is it not arguable that these debts
were in an entirely different category from ordinary commercial debts, and
must be dealt with as such? It is
upon such a theory that it may be urged that the cancellation of war debts
does not involve the slightest disregard for the sanctity of business
contracts.
The
World War is estimated to have cost our Allies some $120,000,000,000 for
expenditures and property damage. A
similar basis of estimating places the cost in money to the United States at
approximately $28,000,000,000. In
human lives, the war is estimated to have cost our Allies over 4,000,000 dead
and nearly 7,000,000 wounded, while it cost the United States 107,000 dead and
191,000 wounded. What could we think if what came to be a common effort should
have imposed such a disproportionate burden upon our Allies, as contrasted
with ourselves, and at the same time have left the United States as the sole
beneficiary of tribute for 60 years, amounting to $250,000,000 annually?
THE
FUTURE OF REPARATIONS
We may well ask
ourselves, what is the likelihood of the continuation of any German
reparations payments? In my
personal judgment, the whole scheme of reparations and interallied debts is a
corpse, and the only real question is, ‘When will the funeral be held and
what will be the inscription placed upon the tombstone? If the patient is not
dead, certainly he is hanging on to life by a very slender thread.’ Nevertheless, a mere personal view of this kind is unimportant, and we
are here this evening to reason, to examine the facts, and to try to ascertain
their meaning. Let us, then,
consider first the economic aspects, and, secondly, the psychological features
of reparations.
The Treaty of Versailles imposed upon Germany an
obligation, payments upon which could be made only by Germany’s maintaining
an enormous export surplus over a long period of years. Yet before the war Germany usually had had an adverse balance of trade.
WHAT GERMANY HAS PAID
Nevertheless,
between the signing of the Armistice and 1923, Germany paid in reparations a
sum, wholly in goods, estimated by the Reparations Commission at a value of
$2,000,000,000. From 1924, when
the Dawes Plan was agreed upon, until the Hoover moratorium in 1931, Germany
paid in reparations $2,500,000,000 and borrowed during the same time some
$4,500,000,000. If one is to
accept the figures of the Reparations Commission, Germany has borrowed abroad
since 1924 almost exactly the total amount she has paid in reparations since
the Armistice. The German
Government, however, recently issued a detailed statement, claiming that
Germany had, since the Armistice, paid in reparations a total of approximately
$16,000,000,000, or nearly four times the amount borrowed abroad.
In addition to her obligations on account of
reparations, Germany today owes a net private debt to foreigners of something
like $5,000,000,000. Germany is
indebted to American investors and banks in the sum of approximately
$2,000,000,000. But up to 1929
Germany’s imports had been greater than her exports. Since foreign lending stopped, Germany has been able to show an export
balance, but this balance is abnormal since it has been obtained, not through
increased exports, but through enormously diminished imports. As a matter of fact, Germany’s exports in 1931 were some $700,000,000
less than in 1930, but her imports were reduced by $1,000,000,000. Germany is today exporting nearly twice as much as she is importing,
but to continue exports on such a scale involves selling goods in the world
market at very low prices, while such a reduction of imports exacts of Germany
a very low level of consumption. The
whole situation represents continued impoverishment and high unemployment.
Continuation under such conditions of the German export balance on
anything like the present scale would appear to be economically out of the
question.
GERMANY’S
REQUIREMENTS
If Germany is to pay reparations, service upon or amortization of
private loans must be abandoned, at least for a long time to come. The total service on her private debts involves a foreign obligation
upon Germany of at least $325,000,000 a year. Germany’s requirements for working capital are so great that it is
evident that the restoration of Germany’s economic health will arise, for
many years to come, through being relieved of the necessity to make huge
payments abroad and in being able to command credit sufficient to enable her
to purchase raw materials abroad and thus develop her internal economy to a
point where she can eventually begin to make foreign payments on healthy basis
If
reparations are to be paid before private debts, they will absorb all foreign
export balances that Germany can possibly develop. That situation, leaving nothing to pay on account of private debts,
would mean the insolvency of Germany as a foreign borrower, total destruction
of her ability to command credit for purchasing raw materials abroad, a
complete breakdown in German internal economy, and thus progressive inability
to make any payments whatever on account of either reparations or private
debts.
DISCRIMINATIONS
AGAINST GERMANY
There is another phase of the subject which has created for Germany not only
great difficulty in meeting reparations requirements, but has left a deep
feeling of injustice. Let us
remember that Germany at the Armistice did not surrender unconditionally, but
agreed to make peace on the basis of President Wilson’s Fourteen Points.
Point Three stipulated that the Peace Treaty should effect:
“The removal, so far as possible, of all economic barriers, and the
establishment of an equality of trade conditions among all nations
consenting to the Peace.”
The Germans at Versailles claimed that the Treaty violated that
condition, and that Germany was not accorded trade equality with the
Allied nations. In their answer
to the Germans, the Allies (January 16, 1919) acknowledged this fact, but,
with a subtlety worthy of Metternich, justified it in these words:
“The German Delegation,” said the Allies, “would neglect entirely the
economic conditions which have resulted from the war. They seek admission to all the trade arrangements provided by the
Peace. This would have the effect of establishing an inequality of
trade(!) Equality can only be
established by arrangements which take into account the existing
differences in economic strength and industrial integrity of the peoples
of Europe.”
OBSTACLES TO TRADE
And so the Treaty
was made, with all its unequal burdens upon Germany. And ever since then Germany has complained that, while the Allies were
demanding huge reparations payments, they were establishing barriers to trade
which made it difficult if not impossible for Germany to ship the goods out of
the proceeds of which alone could reparations payments be made.
A striking instance of the sort of thing that is going on all over the world
today, preventing the normal movement of trade, and making it difficult for
countries to pay their debts to one another, is afforded by the experience of
Hungary and Switzerland. Hungary
formerly used much Swiss Cheese. She
was a great wheat-producing country and with her export sales of wheat she was
able to pay for her cheese. Switzerland
bought Hungarian wheat and paid for it with the cheese which she produced.
Today, Hungary imposes a tariff on cheese, and Switzerland a tariff on
wheat. As a result, Hungary is
making her own “Swiss” cheese, and is unable to sell her surplus of wheat;
Switzerland is unable to sell her cheese, and yet is paying bounties to her
farmers to raise wheat!
The Committee of Experts which in 1924 promulgated the Dawes Plan pointed out
that payments of reparations by Germany could be made only through bringing
about a restoration of German prosperity, particularly in her foreign trade.
As the Dawes Committee said:
“The funds transferred to
the Allies on reparations account cannot in the long run exceed the sums which
the balance of payments makes it possible to transfer.”
THE
QUESTION OF WAR GUILT
Such, in brief, are the elementary economics of the situation, as far as
Germany alone is concerned. But
economics do not tell the full story. The
scheme of reparations is set forth in the Treaty of Versailles to which
Germany was compelled, at the mouths of Allied guns, to sign her name. The first clause of the Reparations Chapter of the Treaty required
Germany to subscribe to this confession:
“Germany
accepts the responsibility of Germany and her allies for causing all loss and
damage to which the Allied and Associated Governments have been subjected as a
consequence of the war imposed upon them by the aggression of Germany and her
allies.”
Before
signing their names to this indictment, the German delegates to Versailles
protested. But the Allies rubbed
it in, by addressing, on June 16, 1919, a communication to the German
Delegation, in which it was stated that the Allies “regard this war as a
crime deliberately plotted against the life and liberties of the peoples of
Europe.” It is this which the
Germans regard as the so-called “War Guilt Lie.” Regarding, as they have a right to do, this war-guilt accusation as the
corner-stone of reparations, the German Consciousness rebels against the plan
of reparations to just the extent that this war guilt accusation is regarded
as unjust.
Is
the accusation in fact unjust? On
this subject I can do no better than to quote from Professor G. P. Gooch,
eminent British historical scholar, who, in his book, “Recent Revelations of
European Diplomacy,” after setting forth the results of the historical
researches of scholars since the war, states his conclusion that:
“It is a
mistake to attribute exceptional wickedness to the governments, who, in the
words of Mr. Lloyd George stumbled and staggered into war.”
His
careful analysis of all the evidence leads Professor Gooch to the conclusion
that the rulers of Germany and Austria “may be acquitted of the inexpiable
crime of starting the avalanche.”
The
Archbishop of York, Primate of England, in a sermon delivered on January 31st
of this year, stated that the war guilt clause in the existing treaties
“offends the Christian conscience.” No
European, he said, can read the diplomatic history of Europe from the Congress
of Vienna onward, and exonerate his own nation from responsibility for the
war. The roots of the great disaster strike deep into the past;
“it was the sin of us all that brought forth in those fearful years its
flower and its fruit.”
In spite of the
war-guilt indictment, it is an odd fact that the great bulk of Germans who
participated in the war and in the defeat of their country have done their
best to comply with the Treaty of Versailles and make good on its reparations
requirements. The opposition
comes chiefly from the youth of Germany; those who had no remote
responsibility for the conditions which caused the war or for the methods of
its conduct. The youth of Germany
today feels that it is in bondage, that the scheme of reparations deprives the
German of opportunity to enjoy life or to attain progress. That feeling is the basis of Hitlerism.
So bitter is the feeling, so profound the rebellion against this sense
of bondage, that it is hardly possible that the plan of reparations, at least
as now imposed, will be long endured by the population of Germany.
HOW
WELLINGTON ACTED
Contrast the treatment of Germany by the Allies with the treatment of France
by Wellington after the Napoleonic Wars. France had supported Napoleon in wars which carried devastation from
Portugal to Russia. After
Waterloo, so great was the prestige of Wellington that to him was entrusted
the power to say what indemnity should be imposed upon France to repay Russia,
Austria, Germany and England for their expenditures and losses. Philip
Guedalla, in his recent life of Wellington, analyzes
Wellington’s mental approach to the problem. He says that the Duke considered that, “if such disasters as the
Napoleonic wars were to be avoided, France must be reconciled to the new terms
of peace.” Wellington himself
wrote a memorandum, setting forth his views as to the choice which lay before
the Allies. He said:
“If the policy of the united powers of Europe is to weaken
France, let them do so in reality. Let
them take from that country its population and resources, as well as a few
fortresses. If they are not
prepared for that decisive measure, if peace and tranquillity for a few years
is their object, they must make an arrangement which will suit the interests
of all the parties to it, and of which the justice and expediency will be so
evident that they will tend to carry it into execution.”
Well might the makers of the Treaty of Versailles have emulated the wisdom of
Wellington.
OUR
OWN INTERESTS
The question of reparations and interallied indebtedness, so far as it affects
the United States, goes much deeper. First
of all, we cannot afford to allow either Germany or the Allies to
default. Indeed, is it not
directly in our own interest to participate in canceling the whole scheme of
reparations and war debts? Even
Secretary Mellon, head of the Debt Funding Commission, and anti-cancellation
protagonist, in a statement before the House of Representatives Committee on
Ways and Means, January 4, 1926, said:
“Europe
is our largest customer. Unless
the finances of Europe can be restored, her currency placed on a sound basis,
and her people able to earn and to spend, this country will not be able to
dispose of its surplus products of food, materials and goods.”
And then he added:
“The
entire foreign debt is not worth as much to the American people in dollars and
cents as a prosperous Europe as a customer.”
These
words of Mr. Mellon recall the words of Horace Walpole, who, when certain
onerous taxes were proposed in the British Parliament to be assessed against
the American colonies, stated:
“We do not want their taxes; we want their trade.”
VALUE
OF OUR FOREIGN TRADE
What does the trade of Germany and England mean to us? Let those who talk glibly of the unimportance of our foreign trade in
our total commerce reflect upon these figures:
In
1911, the United States produced 16,000,000 bales of cotton, of which Germany
and England took 7.500,000 bales. It
so happens that the 1931 cotton crop was again about 16,000,000 bales, and of
that crop Germany and Great Britain at the moment are taking a very much
smaller proportion. Hence the
disastrous price of cotton which spreads its blight over all our Southern
States.
From
1909 to 1913, England and Germany took 40 per cent of our total exports of all
kinds. All South America took
only 6 per cent and all Asia only 4 per cent. Today the ability of either Germany or England to buy in our markets is
steadily diminishing, and the unemployed men upon our streets, the idle
machines in our factories, the empty freight cars on our railroads, and the
pitiable plight of our farmers tell part of the story.
When
President Hoover proposed his moratorium plan last June, values on the New
York Stock Exchange improved $10,000,000,000 in two weeks. Probably the paper value of all American wealth improved £30,
000,000,000 or $40,000,000,000 in that short period. Why? There can be but one reason, and that was an evident public
feeling that the end of reparations and interallied debts, which then seemed
definitely in sight, would mean such a revival of world markets for American
goods that trade would rapidly increase. Had even a portion of these speculative values been sustained by the
events, the chances are that the new taxable values created would have been
such as to make the extra payments which American taxpayers might have to
assume unimportant in comparison with the opportunities for profits and
prosperity thus opened up.
If
we waive our claim for payments on interallied debts, our taxpayers will, to
be sure, be undertaking a burden of some $250,000,000 a year. If we act wisely and constructively, we can, in opening up markets,
create values for our farmers, our manufacturers, our workingmen, which will
make them easily able, out of the new wealth created, to sustain the extra
burden.
INTEREST
IN WORLD PROSPERITY
We have a direct
interest in restoring the solvency and the prosperity of the whole world.
Foreign nations owe us upward of $20,000,000,000. Their debts and the interest upon them can only be repaid if trade
revives and the credit of those nations is again placed upon a sound basis.
Some of our people say, lightly, this is only a bankers’ question. Is it not, in reality, a people’s question?
The people—not the bankers—have invested in foreign securities.
It
is the people’s money which is at stake. Even where our bankers have made foreign loans, they have used the
money of American people— their depositors and their stockholders—to pay
American citizens for goods which have been shipped abroad. The American people— farmers, manufacturers, workmen— have received
the money; foreign peoples have the goods. American bankers merely hold the IOU’s of foreign nations or banks,
representing the benefits others have received.
It is
argued that Wall Street bankers advocate debt revision merely to enable them
to place more loans and gain more commissions, while the American people would
have to bear the burden of paying for Europe’s war. Assuming that the cost of meeting the added taxes of $250,000,000
annually arising from remission of war debts were placed upon American
taxpayers, who would bear the major share of that burden? Official Treasury figures for 1928 show that 97 per cent of the total
income tax collected by the government was assessed against 380,000 persons
out of our total population of 122,000,000, and that 60 per cent of the entire
tax was assessed against 16,000 persons. They are the ones who would bear the chief burden.
The chief benefits would go to the farmers in the creation of new
markets for their goods, and to the workingmen in the creation of new
opportunities to sell their labor.
DEBTS
AND ARMAMENTS
It is urged that if we reduce our claims for war debts, European countries
will thus be able to continue more easily their expenditures for armaments.
Much as I protest against the huge European armaments, let us note that
internal expenditures upon armaments cannot be related to foreign payments on
war debts. Expenditures for
armaments by any country are not payments made to foreign countries. They are domestic expenditures.
In
France, for example, the maintenance of a large army involves enormous
payments for food, clothing and housing for the soldiers. Expenditures for guns once made are over; these other items are
continuous. France herself produces the wheat for the bread, the sheep
for the wool, the lumber for the buildings necessary for these things. Though these payments represent a burden upon the taxpayers of France,
if the wheat, the wool and the lumber utilized in this way were not so
employed, they could be sold abroad only with great difficulty and at low
prices. Even if France should greatly reduce her expenditures on armament, it
would not necessarily mean accumulation of comparable amounts in foreign
exchange available to make payments abroad.
The essential fact about war debt payments is that they are foreign payments.
Many people seem to think that the French Government may tax its
citizens, deposit the money in the Bank of France, and then either draw a
check upon the Bank of France to pay the United States on war debts, or use
the same money for armament expenditures. The essential difference is that a check drawn in francs by the French
Government upon the Bank of France to the credit of the American Treasury is
of no value to us until it is transferred into dollars.
The
transfer of money from one government to another can only be made as a result
of the transfer of goods, services or credit from one country to another.
These transfers of goods, services or credit must be made by the
citizens of the countries which owe, to the citizens of the countries which
are owed. Commercial transactions
do not take place between one government and another. If more is sold to us by France than we sell to France, the French
Government can then acquire from its own citizens, by taxation or otherwise, a
portion or the whole of the surplus of the French exports. This presupposes ability and willingness on the part of ourselves to
purchase from France more than we sell to her. If we refuse to make these excess purchases, payments can only be made
in gold. While France has gold
today, it would not take a very long time, if all interallied debt settlements
had to be made in gold, for us to absorb all of the gold in the world.
The
situation is illustrated by a story told by Mr. Albert Wiggin. On returning from Europe recently he said that when he was a boy he
used to play marbles “for keeps.” As
long as all of his fellow-players had some marbles there was a game, but when
one boy got all the marbles the game was over.
WHAT
THE GOLD STANDARD ENTAILS
Indeed, the smooth functioning of the gold standard is dependent upon the
condition that the total exports (in the broadest sense) of all the countries
in the world should strike a substantial balance with the total imports (in
the same broad sense) of all the countries of the world. Gold should be used internationally only for the settlement of the
inequalities in payment which may develop between particular nations, just as
currency is used to settle balances between banks and the Clearing House. The
total of the debits and credits of all the banks should be equal.
If
one set of banks is placed in a position where it must make constant payments
of currency to another set of banks without corresponding credits accruing, it
is only a question of time until the debtor group of banks will be out of the
banking business.
If
it develops that there is an abnormal movement of goods, services or credits
from certain countries, which is nor balanced by a corresponding movement of
values from the other countries, the entire equilibrium is upset. That seems to have smitten the trade of the world in recent years is
that through the operation of the reparations agreements and the interallied
debt settlements, France has been entitled to receive an amount of values from
Germany which represented no corresponding outflow of either goods, services
or credit; the United States has been in a similar position with reference to
the Allies who have been paying their debts to us. As neither we nor France have been taking goods or services in adequate
quantities, as France has not extended adequate credit, and as we have since
the beginning of 1929 greatly curtailed foreign credits, gold in abnormal
proportions has accumulated in France and in the United States.
THE
BURDEN OF THE WAR DEBTS
If this view is correct as to the real meaning of such unbalanced payments,
the whole system of reparations and interallied debts is inherently and
intrinsically a burden which the trade of the world cannot carry and maintain
its prosperity. It is a cancer, which slowly but surely eats into the
otherwise healthy structure of world trade and greatly impedes its early
revival. The English, with that
singular genius which enables them to penetrate into the fundamental meaning
of things, have seen this clearly, and their government has set forth the view
as the official opinion of the British nation that the whole structure of
intergovernmental war debts should be abandoned. And this notwithstanding the fact that the British, with a population
of 45,000,000, have a national debt of some $35,000,000,000.
In
closing these observations, it is pertinent to quote a few sentences from the
report of the Bankers’ Committee which arranged for the prolongation of
foreign short-term credits to Germany. That
report, dated Berlin, January 23, 1932, was signed unanimously by the
representatives of seven nations, including the two delegates from France and
the American Chairman, Mr. A. H. Wiggin. Three passages from the report to which the attention of the peoples
and the governments of the world may well be directed are the following:
“It
is obvious that a settlement of Germany’s international payments, which are
now under discussion between the governments, is a vital element in this
problem, as indeed are the inter-allied debts, which are in intimate economic
connection with them.
“The
nations of the world are contending each for a disproportionate share of a
dwindling world trade. With a
different policy they could share with one another an expanding world trade.
It is essential that trade policy should permit goods to move in the
settlement of inter-national debts, and that countries should make markets for
one another. With trade lines
open, labor now idle in one country could be at work producing goods to
exchange for goods which would be produced by labor now idle in another
country.
“The
present extreme crisis must bring home to all peoples of the world the fact
that all countries grow poor together. The
obverse is as true. All countries
grow rich together. A lightening
of burdens and a greater freedom of trade, enriching one country, will enrich
all.”
“The
Equation of Indebtedness”
By
C. F. BASTABLE
(From
Chapter IV of “The Theory of lnternational Trade,” by C. F. Bastable,
published by Macmillan and Company, Limited, 1929)
The mutual relations of
nations, or trading groups, are not all comprised in the actual exchange of
commodities. When intercourse is
of long standing, and when it has become possible to move capital with
comparative ease from country to country, the exports and imports become but
one clement a very important one, it is true in the sum of commercial
transactions.
In
order to understand the exact position of a country, we must consider not
merely the equation of reciprocal demand, but rather what may be styled the
equation of indebtedness. It is
not the equivalence of imports with exports that constitutes the stable
condition of trade, but the equivalence in the sum of debts due to the
country, and that of debts due by it.
ANOTHER
POINT OF VIEW
The
following remarks were part of a speech delivered by Professor
Edwin W. Kemmerer of Princeton University, before the New York Chapter of the
American Institute of Banking at the Waldorf-Astoria
Hotel on February 27, 1932
Is the charge true that we so frequently hear that the United States has
forcibly drawn to itself an unreasonable proportion of the world’s stock of
monetary gold and has deliberately and selfishly impounded it here? The answer, I think, is clearly, “No.”
In
the first place, no one has yet given a satisfactory answer to the question,
“What proportion of the world’s stock of monetary gold is the United States
reasonably entitled to have? “Roughly
speaking, the United States has about 40 per cent of the estimated capitalized
wealth of nineteen leading countries - countries which together have about 90
per cent of the world’s stock of monetary gold. If, therefore, our share of the world’s monetary gold were merely
proportionate to our share of the capitalized wealth, we should have 36 per cent
of the total - almost exactly the percentage we do have. Considering the high development of our American banking system and the
highly efficient use we normally make of our monetary gold, we probably have
somewhat more need, but we have not obtained it by a grasping policy.
One common argument is that we insist upon foreign countries paying us what they
owe us, and then by imposing against them high tariff barriers force them to pay
us in gold. May I say,
parenthetically, that although personally I am not in sympathy with our American
high tariff policy, I believe in “giving the devil his due,” and I believe
that the influence of our tariff is a very small one on the world’s
distribution of gold.
IMPORTS
INCREASE DESPITE TARIFF
About
two-thirds of our total imports enter free of all duty, while the average rate
of duty on all American imports for consumption is now only about 14 per cent.
Despite the tariff, our import trade has been growing. It increased from 8.3 per
cent of the world’s total import trade in 1913 to 12.4 per cent in 1929, and
for some years now our import trade has been the largest of any country in the
world except that of Great Britain. The
total interallied debt payments to us in 1929 were equal to only 4.8 per cent of
our merchandise imports, or to 7.4 per cent of our non-dutiable or free imports.
The interallied debt payments of Great Britain to the United States in
that year were equivalent to 4½ per cent of her total merchandise exports.
Her debt payments to us were almost exactly equal to her non-dutiable
merchandise exports to us.
One
important reason why our stock of monetary gold in the United States is so large
at present may be expressed in the term “safety first”. Funds have flowed to the United States and France in very large
quantities for safe keeping. This
flow of investment funds has carried with it a flow of gold. The all-important consideration lately has been safety, not yield.
Our gold market for many years has been an absolutely free one. Since 1919 the people of any foreign country (except Russia) having
liquid assets in the United States have been able to convert them into gold at
will and take the gold out of the country without restrictions.
“Rules of
the Gold Standard Game”
By PROFESSOR GUSTAV CASSEL
(From the Quarterly
Report of the Skandinaviska Kreditaktiebolaget, in
Stockholm, January,
1932)
The following conditions must be regarded as indispensable for the maintenance
of an international gold standard system:
Firstly economic conditions: the abolition of abnormal impediments to
international commerce and international movements of capital; the renunciation
of unreasonable demands for transfers of capital in connection with war debts as
well as short term credits granted by private lenders; finally some willingness
to grant loans to make up for deficits in the international balance of payments.
Secondly monetary conditions: the utilization of increasing stocks of gold for
increasing the amount of money in circulation and thus raising the level of
prices - a condition which also involves the renunciation of unreasonable
demands for gold cover; as a preparatory step the immediate abolition of all
statutory enactments regarding minimum gold reserves.
Equilibrium
in Foreign Trade Is Important
By JOHN MAYNARD KEYNES
(From
“Essays in Persuasion,” by John Maynard Keynes, Harcourt, Brace and
Company, 1932)
The equilibrium of international trade is based on a complicated balance between
the agriculture and the industries of the different countries of the world, and
on a specialization by each in the employment of its labor and its capital.
If one country is required to transfer to another without
payment great quantities of goods, for which this equilibrium does not allow,
the balance is destroyed.
Since
capital and labor are fixed and organized in certain employments and cannot flow
freely into others, the disturbance of the balance is destructive to the utility
of the capital and labor thus fixed. The
organization, on which the wealth of
the modern world so
largely depends, suffers injury.
In
course of time a new organization and a new equilibrium can be established.
But if the origin of the disturbance is of temporary duration, the losses
from the injury done to organization may outweigh the profit of receiving goods
without paying for them. Moreover,
since the losses will be concentrated on the capital and labor employed in
particular industries, they will provoke an outcry out of proportion to the
injury inflicted on the community as a whole.
The
Mal-distribution of Gold
By the HON. RUPERT E. BECKETT
Chairman of the Westminster Bank, Limited, London.
(From an address at the Annual General Meeting of the Bank in London, January
27, 1932)
In
my judgment, what has been called the “gold crisis” arises in a large
measure from the fact that gold has been required to fulfil a purpose for which
it was never designed. Gold is a
token of exchange: it is the international counter, accepted by the nations as a
standard, through which variations in the quantity and value of goods and
services passing from country to country can be adjusted.
Gold
should therefore be the instrument of commerce. It should not be regarded as a commodity of commerce yet in these
post-war the nations have tended to
treat it. In effect, country “A” says to country ‘B”—”You owe me many millions: please pay, but I will not take
payment in goods—indeed, I have erected tariff barriers on purpose to prevent
your goods from coming into my country. I
will not take your paper or your promises to pay, because I do not think they
are good enough, so you must give me the only other means of payment which you
have, namely, gold itself.”
Obviously,
if this process were developed indefinitely and an attempt were made to settle
all international war debts and reparations in gold, the stocks of the metal
would be entirely insufficient for the purpose, and if there were gold in
sufficient abundance then I anticipate that gold itself would depreciate in
value.
The
connection between the mal-distribution of gold and international payments is
abundantly clear. Two sets of
simple statistics are sufficient to illustrate it. In the years 1922-31, the net receipts in respect of war debts and
reparations by France and America were approximately 650 million gold pounds:
during the same period the net influx of gold into those two countries was
approximately 550 millions. The
close correspondence between these two figures is not a fortuitous coincidence.
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