CAPACITY TO PAY.

Auckland Star, Volume LVI, Issue 188, 11 August 1925, Page 15

CAPACITY TO PAY.

A DIFFICULT PROBLEM.

Kfl-LTJENCED BY MANY FACTORS.

ißy HARTLEY WITHERS.)

On the occasion of the opening of negotiations between the United States and Italy concerning the funding of the latter's debt to the former, it was announced that "capacity to pay" had Vcn carefully, considered by Italy, and that the basic principle, that debt payrr.ent should be limited on these lines, wai put forward as recommending itself to tlie practical mentality of the Ameritan people. The acceptance and discussion of this principle ie said to have occupied most of the. attentions of the drlrjates of the at the first conference, and was hailed by the "Times' , correspondent as a "far cry from the uncompromising American insistence of a few years ago.' , t'n fortunately the acceptance of this principle does not .really take us very ha towards a practical solution of the : questions involved. In the tirst place, tin. principle merely states a truism, since it is obvious that no nation can be made to pay more than is within its capacity. If it be true that American opinion has moved a long way in order to arrive at the conclusion that no one car draw more than a pint out of a pint pot. it is a good deal less alert than it is usually believed to be. In fact, American opinion probably did not concern itself very closely with, the question of the amounts that America's European debtors would finally be able to pay. It had a sound and sensible prejudice in favour of the view that debts let ween nations oupht to be observed as caiefully as debts between man and man, but it would certainly have admitted that national, like individual debtors, have to be handled with eon-s-deration for tbe facts of the case: and that if a debtor who owes 1000 doliars has assets worth 000 dollars, attempts to exact payment in full are unprofitable to both parties. Recognition of thi3 principle does not, therefore, throw a very large flood of new light on the broad issue involved, and as a h'jlp towards arriving at a practical figure it is still less illuminating, because when we have got it we are still a very long way from knowinjr what is the capacity of any people to make payments. Difficult to Calculate. We all remember with how much hope and enthusiasm the appointment of the Dawes Commission was received, because it was expected that from its labours the world would at last be enlightened as to the real facts concerning Germany's capacity to pay reparations. The commission did work that will entitle it and its efforts to an honourable place in history. But we do not yet know how much Germany is going to pay to her creditors; and when that ia known there will certainly be plenty of people who will argue from the fact that she has paid so much she could, and ousht to, have paid more. Even the actual physical facts of a people's capacity to pay are only capable of measurement within limits that leave plenty of room, for error. By means of a census of production, carried out with scientific thoroughness timt ii rarely applied to such investigations, it mifrht be possible to know the value of the total productions of goods and services of any country in a stated period previous to the inquiry. But even v. li 'n we have got thus far, there is still plenty of room for doubt as to how far this production be irirrcas.-il by better organisation and more invent!!! ,, methods. As was shown at the ;i m> o' , tiie war. all tbe countries iivolwd h.i.l reserves of productive power .-v. ii ax had never been suspected, and only tame into practical use because n urer.t. national emergency discovered their existence. To use his lawn tennies court f< nfeeding his family with a potato crop did not occur to the averajri? niid.Tleclass Briton of 1913 as an economic proposition to be seriously considered. In VMT he was doing it. Willingness a Factor. Capacity to produce thus depends not only on the physical and material plant at the disposal of a people, which can be measured with some approach to accuracy, but also on the quite imponderable question of the extent to which it is prepared to make use of it. The tennis court is there, visible. But no one can guess how much patriotic or other pressure is required before its owner will set about digging it up and planting it with potatoes. And from capacity to produce it is a lonii step to capacity to pay; for the latter implies that part of the production is to be used for the benefit not of the producer, but of some other party —a creditor or a tax-gatherer; and so we come to the still more unanswerable question of the point at which the energy of production will be checked by the thought, that so much of each, man's work will be devoted to somebody else's benefit. In these psychological matters each nation can only make guesses from its own experience; and there is no doubt that we in England, at the time when income tax and super-tax were at their maximum, were checked in our readiness to work and to take economic risks by the thought that something like half the reward of effort would go into the maw of the tax-collector. As long as the war lasted, this feeling had little if any effect, afterwards, it was certainly a factor to be reckoned with. All these uncertainties have to be cleared up before we can know the facts about the power of a people to make payments to its own Government; and when the question is still further expanded by trying to reckon its power to make payments abroad, a new set of complications arises. One of the most important services rendered by the Dawes Commission was the empnasi3 that it laid on a fact—recognised by economists and business men but obscure to the general public—that a people can only transfer money across its frontiers by means of an excess of exports, using the word exports in its wiriest sense. With regard to Germany the Dawes Commission left.this problem to be settled in the light of experience. It decided how much could he collected in Germany towards Reparation payments, but left the amount to be transferred to the Allies to be settled by the exchange value of the mark, payments being limited to the amount of marks that can be sold abroad without breaking their price.