THE BIGGEST MUDDLE IN HISTORY

Dominion, Volume 31, Issue 242, 9 July 1938, Page 3 (Supplement)

THE BIGGEST MUDDLE IN HISTORY

Problem Of War Debts

War debts are in the news again. An American economist has volunteered that the United States cannot forgo the debts. Their position has I>een vividly and accurately explained in the following satirical account in an English weekly journal. If only you and I could manage our affairs in the way the nations of the world manage theirs, he says. Just suppose, for example, that you and I and a number of our friends had a violent lawsuit brought against us, brought by someone whom we will call Fritz. Suppose, now. that in order to raise the funds for our defence we went to a third party, Sam. Sam was also in danger of having a lawsuit brought against himself, so he agreed to provide the money to help us contest ours —on condition that we paid him a high rate of interest and that the greater part of the money was to be spent with him. Further, having taken a good look at us and seen that we did not seem a very well-to-do lot, ajid that we were likely to be a good deal poorer by the time the lawsuit ended, Sam insisted that one of our number—John, by name and a wealthy man—should guarantee the money borrowed by the rest.

The war (or the lawsuit) came at last to an end—and the question now was, “How is Sam to be repaid?” The first answer was easy—/‘Fritz caused the trouble —let him find the money.” But Fritz had spent everything he had in the struggle that was now over. He could not pay in full in money, he must, pav in goods, and before he could pav in goods Fritz had first to rebuild all his factories, to install new machines, to put up flats for his workers, to improve his transport. In order to enable him to do this, Sam and the rest of us lent Fritz vast sums of money—borrowing it from one another in order to gain the extra rate of Interest we could secure from Fritz. No sooner were Fritz’s new factories in working order than he began to flood the world with the goods ho was now able to produce—ruining the trade of the very people who had lent him money. We protested. “But, said I ntz, “you insisted on my paying you. Now, when 1 send you goods you put up tariff barriers and declare that I am ‘dumping.’ “Either you must let me off my debts, or else you must stop all my trade, ruin my factories —and, incidentally, lose all the money your people have lent me for rebuilding.” Fritz’s debts were twice scaled down, and finally it was decided to let him off the original debts altogether, in order to enable him to go on paying interest on the new, and mainly private, debts. But if Fritz could not pay John, Fierro, Antonio and all the rest, neither could they pay Sam—for they had been counting on Fritz’s money to settle their debts to him.

They could not pay in gold—for nearly all the gold was in Sam's hands already. They could not band over vast sums of paper currency—which would immediately fall away in value the moment any attempt was made to convert it to the currency of the person (or nation) receiving It' Nor could they pay in goods for the very reason that Fritz could not pay them, because it would have ruined Sam’s own trade to have had millions of tons of lowpriced foreign goods left on his shores. And though in the end Sam did hint that he might take payments in kind, he had already introduced tariffs which rendered this virtually impossible. What were they do do? Obviously there was only one thing, and that is what they—or we—are gradually doing... to forget about the whole thing!

Until that is done, the world stands still. Business is handicapped, developments are held up, international trade is restricted by doubt and fear —because nobody knows how the greatest of all financial problems will be straightened out, nor what calls be may have to face.

Once all war debts and reparations are finally cancelled it will be seen how remarkably everyone has benefited. Fritz, who caused the trouble, has had his country re-built for him at the expense of those he injured, Pierre and Antonio, who stood to lose most by the attacks of Fritz, have reduced his military power with money they never had to find.

John has had to find or to guarantee vast sums of money—but a great part of it was spent in his own factories, and a still larger part will then have been remitted. Sam will have ha ’ his lawsuit to a great extent fought for him, has enjoyed for many years a-state of unrivalled prosperity due to the purchases made from him by the rest will have got back as much as he could ever hope to get of the millions of dollars’ credit created by the banks to finance the purchases from him!

Mr. Neville Chamberlain summed It. all up in a nutshell not long ago when he said, “We believe that the total cancellation of war debts and reparations would be the best thing that could happen to the world as a whole.”

When that is done, industry can expand, capital can profitably be Invested Overseas, the American farmer can find markets for his wheat.

The world will not yet have been made just, prosperous nor safe—but it will at least provide a living for a good many more of its Inhabitants than it is able to at present. In the meantime it Is at least a charming thought that when you and I don’t pay our debts It is a “swindle,” when another country falls to pay her debts to us it is "default,” when we refuse to pay ours it is a 4 ‘statesmanlike move” 1