THE GERMAN MONETARY COLLAPSE.

Dunstan Times, Issue 3134, 11 September 1922, Page 7

THE GERMAN MONETARY COLLAPSE.

(Uy Laurence Laughliu.)

The continuance of the recent enormous weekly issues of Heichsbank notes could have but one result—the la 11 of the paper mark to a price (Ids hundredths ol one cent) which indicates the. substantial end of its market value. This collapse is due eilhar to inconceivable monetary folly or to a conscious purpose to precipitate a crisis—perhaps to both. The mad not ol new issues has put the total at <> smn which makes their redemption at , );u - in the future a practical impossibility It looks,as d we were now lace' to face with repudiation m some form and with all the drab complications of Governmental incapacity and bankruptcy. Perhaps that is just %'hat the wily opposition to the payment of 77‘T ssss n—.l'-fy inextricably : the treasury, and the dtspua of political pai tics. - r . tcß , s t proaches the climax, it is ot to know just how the cams fall in m value .1 the writ I J been due to, reen mous .s.utt out any 1™™“"? to > - reloading, them, a *>"“<* to Without income, o repara'm'et a to n 0 or ”ho Goven.ine.it set out to Lions, too, t Uv fictitioUS credit pay its obhr.atio . > ly promises paper issues. > '' €lß f German to pay, secured V A s all is eataiilisliod know, the , . : s ulM Jer close by private capdal is vu rul State supervision. Uncle, t ono . thir d its notes r ;; s pl e ° talents (Imperial ot com 01 its eq 0 f other Treasury notes a ‘ thirds 0 f coinbanks), and b> the < increasing? mercial papei, « t- treasury notes, the reserve ot Bm K 'J' al inbank notes could Government araasod. AIM, rtf' t l,e loan lu'tho &. .S'SiiS: enormous sums, aiicl them. If •i widespread speculation ii ,*i Jsft W* 'constaiitly *gd£ WeTirTv 9 fe“ t0 24W poimd b Sterling. Vhe headers of these promises to pay in a 1 °How e this disruption of the value of the mark affects the payment of up■irations is of importance, borne Gu m,m £d«, wrongly attribute the tall in the mark to the insistence by the Entente upon payment ot reparations The fact that reparations had to be paid was no reason why a too* h overissue of paper money had to be niadc. It should have had the opposite effect and forced care in the handling of the curenev in the face of a critical demand.’The reparations must.bei paid m gold or its equivalent. In 1J22! hve pnyments, amounting to foo,() ( K,Uny marks, were made as early as March. No gold left Germany for these payments. Bv law German exporters are required to turn in all the foreign bills given them in return tor their exports, then the Government gives to these exporters in exchange paper marks a the current rate. Tint these exporters are obliged to sell their paper marks in order to realise on the proceeds ot their goods. Thus in one way or another the enormous over-issues ot bank notes are forced on the market tor what they will bring. There is no redemption' to hold up their value or lessen their quantity. As their value declines', the Government, like any individual. must give more of them lor foreign means of payment. Hence the burden of reparations increases Hut, while this increasing burden is wholly a. matter of their own contriving, the Germans arc i[logically using it to prove their inability to pay their dent to the Allies. The present monetary collapse is simply a record of the end to an attempt to make payments on a large scale by a currency “not worth a continental. It has come about under the Ebert, socialistic, form of government. And it must be admitted that socialistic Governments have a. weak fondness for the printing press when it comes to paying debts. The present cataclysm, of "course, counts against those who are responsible for it. Their enemies will do all they can to make it a cause lor driving them out of power. The monarchists will stop at nothing. Consequently, politics will greatly aggravate the "crisis. Indeed, very grave political changes are entirely possible. Serious, however, as is tho monetary collapse in its effects on exchange of goods, cost of living, the level of prices, contracts, the relations of debtors and creditors, it must he kept in mind that it has not destroyed a factory building, nor changed the fertility of flu > soil, nor killed off the labor force. Economic destruction has not taken place. Everything in the way of valuation and exchange vs out of gear, hut irith time and skill the machine can bo readjusted and put into operation again. Kleamrb'de, delay and loss are inevitable before recovery can set in.

The absence of a ue/l-contrived monetary system forces a resort to makeshifts. Goods will not cease to be exchanged because of an inadequate medium of exchange. Instability of value in money will start speculation, but it will not stop exchanges of goods. At the worst, barter may come in. But we must keep in mind that civilised usage has already evolved an effective system of barter under which actual transfer of money is minimised. Use will undoubtedly be made of all these possible devices in the present emergency, if the mark "g° ( ' s t () smash." Should it be necessary to fall back on payment in goods, rough adjustments can be made in trade.

Of course, value, or rates of cxelialige lor the goods, must be first agreed upon. The rest is easy. Before his murder, Walther Rathenau', was identified with a plan to make reparation payments to France by goods instead of cash, lie was supported in this means of payment by Loiicheur. It was an intelligent and logical method of paying when the currency had become disordered. Rathenau pointed out that Germany's imports amounted to five or six billion "old marks, and her exports to only three or four billions. Such a situation could not continue, if the foreign balance had to be met in cash. He re-

marked that Germany could not settle its debt by exporting paper marks because, as he expressed it, there was "a buyers' strike against the mark." But a debtor country, as Garfield once put it, can no more export its depreciated paper than it can export runcid butter. Germany can pay its reparations and its international balances only out of its production of goods. Printing paper money is no help; it produces no goods. It is well that the collapse has come; it is a condition precedent to health to have it over with as soon as possible. The only way to get the poison out of the system is to have the sore lanced. The excess ol Germany's imports over exports can be cured onlv bv increased production ot exportable goods. For a time she may need credits from American exporters so that she may buy materials. Hut her chief difficulty will probably arise from the opposition of the countries to which she is in debt to receiving her exports if they compete with their own products. Even France objects to admitting goods needed to restore her devastated districts. But sooner or later German goods must be received, i-:«o in the mark would bring about a destructive panic. Bore we have the reverse eidfe to the shield. The disasters of a fluctuating paper are distributed through, its effect on the levc. of prices. As the paper declines, it causes a rise in. money wages', all consumers' goods, freights, securities, and property. This was the sole cause of the "catastrophe boom." Now it, on if reparations are to be paid. The immediate effect of the monetary collapse seems to be a greater distrust of German credit and of the ability to pnv for her imports. With this goes li dread that the collapse means the cessation of production, the postponement, or stoppage, of all reparation payments. On this supposition French and Belgian finances would be weakened. But if an insane monetary policy is thus rudely removed, and Germany is thereby the sooner forced to rely only on the proceeds of her goods as means of payment, the better in the end tor the fi'naiices of the Allies. Of course, the loss caused by a vicious monetary system is not to be minimised; it reduces protection and industrial efficiency. It gives color to the plea that the amount of reparations is too great for Germany to pay. This amount, however, is not to bo determined by the fate of the mark. but by her productive power. As regards "that power we are left somewhat m doubt. Germany has lost territory and resources, and her energy and ambition mav have been reduced. It is quite possible that the total of reparations should be reduced or that her industries should be given time to recuperate before she can pay large sums. That is a question of fact to lie settled by a trustworthy inquiry. The failure of the recent international conference of bankers to agree upon a loan to Germany, unless they were free to discuss the amount of reparations, seems to imply that either suitable guarantees are not forthcoming from Germany as to a reform in her financial practices, or that France refuses to accept a plan which does not at once lighten the burden of her outlay in the devastated regions. The matter of the monetary collapse is an outcome of Germany's own internal policy for which she alone is responsible.' France has the right to expect that Germany's power to pay shall not be compromised by any financial errors, conscious or unconscious, which can be cured by proper action. Already France has expended 45,000,000,000 francs for reconstruction in the devastated area, and in addition about 35,000,000,000 francs for allowances to soldiers' families and war pensions, which, by the terms of the treaty, ought to have been reimbursed before this by Germany. Of the amount paid for reconstruction. 27,500,000,000 francs were advanced by the Treasury, 14.000.000.000 by tinCredit National, and 3,500,000,000 were borrowed by the towns, districts and departments of the liberated territory. Of course, interest and sinking funds for these loans fall on the State. As against this outlay. France has as vet received from Germany about '1,500.000,000 gold marks in cash. In fact, payments in kind and in cash, just about cover the expenses of the army in Germany and advances for coal' under the Spa agreement. So that, in fact France has received nothing applicable to reparations. Consequently, the effect of the monetary collapse on French finances is obvious. The commercial world evidently regards the collapse as an evidence lif bankruptcy, and that, if the mark "goes to smash," Germany will have nothing with which to pay. On this supposition France and Belgium (who have a preference on reparations) will have mi German funds to support their heavy indebtedness. It was not surprising, therefore, to note even in the New York market a serious fall in the prices of French and Belgian bonds. Mo one can foretell exactly what will happen in Germany as a consequence of the collapse, since political and industrial conditions are much confused. Hut where any institution having outstanding demand obligations fails to pay them on presentation in cash, it is understood by that act to have suspended payment. A received is then put in charge and a long period of liquidation follows. .Making" due allowances for the difference in status of a bank and a state, when a state defaults on its promised' payments the act is cleanly a step toward bankruptcy. But the outcome depends upon the amount and kind of assets which can be used in liquidation. In any case, there must be a delay in making payments until liquidation /',« completed. But in the case of a sovereign state, which cawnot be sued, new assets can be summoned to its aid! by virtue of national credit and taxation. Hence a state can slave off insistent demands and levy on tiic country'* wealth. Therefore, ib does not follow that Germany's monetary collapse is to he followed by bankruptcy and total inability to pay. At the worst it means delay and some form of repudiation. .Much. also. depends on her willingness and ability to pay. If willing, everything depends in Ore long run on her productive power. In tin's connection the position of Stinnes and the industrialists of Germany is of some importance. It goes without saying that they have Ittte liking for a socialistic government. They would gladly give some support to it if thereby they could obtain larger control over industries, railways and Russian concessions. Isut they are obviously affected by the power of Franco and' the Allies to enforce reparations. And. in the main. the. amount that can be collected depends on the 1 condition of German industry. They would be interested in any plan by which reparations could be delayed or reduced. If the mark is to be allowed ''to go to smash" as a means of advertising German inability to pay, they will not stand in the way. It is not clear what is meant by the report that powerful industrial interests have now decided to stand from under and let the mark drop without support. The authorities of the state have been causing the excessive issues of notes, and certainly no support from outside could' have been effective, for depreciation has

been continuous and inevitable. Probably all there is in the report ie that speculators have ceased to hope for a rise and have Ceased to buy them" Nevertheless, there is a growth, of German commercial! opinion which has arisen since the mark has fallen which is certain to have a good deal of inlluence. It works strongly against any effort to restore the value of the paper. Indeed, it is repeatedly urged that a the other hand, any (serious success were had in restoring the value of the mark, prices would correspondingly fall. An entirely new readjustment would have to be made' in industrial costs and selling prices. It would be a di*?mal and unhappy process, gathering opposition as it progressed from all debtors. There would inevitably arise a. German Bfyan and political agitation on money would take its familiar course. It is entirely aside from the point to suppose that granting a loan to Germany will restore the value of the mark. The collapse of the mark is due to causes that cannot lie touched bv a loan. The remedy is in a drastic change of an internal state of mind as to money. Without that change, loans without limit would have no effect. One might as well attempt to cure tuberculosis by use of the pepperbox. .So long as unrestricted issues of paper are allowed, no loan can, or ought to, he given. To obtain a loan proof should be presented that the proceeds of it should not be used in a way to destroy Germany's credit. Moreover, nothing can be gained' by trving to estimate her power to payby figures of total debt and receipts from taxation, so long as these sums are given in terms of paper marks which have been steadily declining. It means nothing real to state that on March 31, 1922. the total internal debt of Germany was about 355,000,000,000 paper marks. The reparation debt as fixed bv the London agreement of Mav 31.; 1021, is 132,000,000.000 gold marks. Hut a gold mark is worth in our money 23.H cents, and a paper mark onlv 18J hundredths of 1 cent Also, the total receipts for the year ending March 31, 1922. arc, given as 87,374.000,000 paper marks, as against 46.099.000.000 the previous year. Those figures do not meant that receipts from taxes have nearly doubled, but onlv that the mark has depreciated. They are meaningless by themselves. Tlie whole body of German financial operations is poisoned through and through by the false monetary policy which has allowed' the value of the'mark to collapse.