THE CASE OF FRANCE.

Auckland Star, Volume LXII, Issue 127, 1 June 1931, Page 4

THE CASE OF FRANCE.

DEBT REPUDIATION. WRITING DOWN THE FRANC. In its recent bulletin dealing with the subject of currency inflation the Department of Economics of Canterbury College says:— "France is often quoted as an exception to the rule that inflation is inevitably a ruinous process, and the prosperity of France during recent years is used as an example to show the advantages of inflation. But the full effects of inflation have not yet been appreciated, and even France, despite her importations of gold and expansion of money in the last two or three years, is now suffering depression and a rapidly growing volume of unemployment. Moreover, France's prosperity is due to a number of factors. She gained greatly by the increase of her material resources, notably coal and iron, as the result of territorial acquisitions under the Peace Treaty. She gained further by the reconstruction and reorganisation of much of \er industrial plant on modern lines, with the aid of reconstruction loans after the war. But her business interests gained most by the repudiation of debt involved in the writing down of the value of the franc in terms of which all debts were expressed. Before the war the franc was valued at nearly lOd in English money. Shortly after the war it was worth 5d to 6d. Later its value fell, and it was stabilised about 1926 at less than 2d in English money. France borrowed, mostly internally,' a sum approximating £8,000,000,000 to £10,000,000,000 if converted at pre-war rates, 25 francs to the £1. Practically all of this was raised when francs were worth between lOd and sd. Later the franc was stabilised at a much lower value, and all debt payments, including interest and redemption of public and private debt, became payable in francs worth only 2d each. Thus the war and reconstruction debt was reduced to a sum approximating £2,000,000,000, about one-fifth of its value expressed in pre-war francs, and perhaps one-third of the average value at the time the money was borrowed. Round about two-thirds of State debt was in effect repudiated, and the same process was applied automatically, by the writing down of the franc, to all debts, whether public or private, within the country "Consequently about two-thirds of all existing debt was written off, to the advantage of borrowers, and at the expense | of investors, lenders, and other creditors. With the franc at one-fifth its pre-war I value prices averaged about five times as | high as they would have been had the ■ iranc been restored to pre-war parity. But •.ertain internal prices and costs of proluction did not rise proportionately. In j particular wages rose less than average I prices. Hence the producer gained, first by having all his borrowed capital written dow-n to about one-third its cost, second by the possession of modernised equipment bought with loan money partially repudiated, and third by the payment of real wages appreciably lower than those A& T£, 0 - liest , hlB forei S n competitors. About 192 a real wages in France were estimated at about 33 per cent lower than in Lngland, and this relatively low level of wages is an important cause of the apparent prosperity and comparative absence of unemployment in France during recent years."