WORLD’S NEED

Hokitika Guardian, 5 November 1931, Page 2

WORLD’S NEED

WAR-DEBT REVISION

THE GERMAN ARGUMENT.

AN UNBEARABLE LOAD

\. That the world economic depression developed from the load of international debts—above all, the war debts—and that the reduction of these is a fundamental condition to bringing back prosperity, is the thesis put forward by the former German Minister of Finance, Bernhard Dernburg, chairman of the board of directors of the recently created Acceptance and Guarantee Bank, in i-fi study of ‘‘The 'World Fail iiig,Prices the vNew York Times).

'Estimating that the 15,000,000 unemployed in capitalist countries represent an annual shrinkage of wealth of '7,500,000,000 dollars, Dr Dernburg points out that .this amount is almost exactly the present cash value of German reparations under the Young Plan, and asserts that the payment of reparations therefore adds nothing to the world’s wealth.

' On the other hand, according to Dr Dernburg, the payment of reparations fkeeps up the How of gold from debtor ;to creditor countries, which tends furither to depress the price of goods,-tvhile -ithfer; lower prices fall the smaller becomes the portion of the international /Obligations of all sorts that can be sottied by exporting goods and the ?|jrestei’ grows the portion that must be paid in gold. Thus, the former Finance /jMintister contends, there is formed a •vicious circle whence .there is no escape. I'*!:'.■ 'L- TJ ME M\ .• '-' E .SHORTAGE OF GOLD.According to Dr Dernburg, the collapse in the prices of the world’s taw materials should be interpreted as due ■to the shortage of gold caused by load■cng the war dabts-on .top of the already considerable international debts. In the total these German reparations are much the largest 'item, amounting on the ,average to 500,000,000 dollars annually, while the yearly production of gold for monetary purposes is only 200,000,000 dollars. '• Thq present .of gold, according to Dr Dernburg, is sufficient for the demand for the -."coverage of paper money for industrial purposes, and for hoarding dn outlying countries like India and [Egypt, but inadequate to meet the demand added by the war debts. ’ .Before the war, debtor countries-were producers of raw which ; soucd. be freely exported to creditor countries, dn settlement of obligations, but the twar, Dr Dernburg adds, created political delbts 'owing by industrial countries which, mainly have only manufactures for export to other industrial countries in the same situation. At present, he cmphasisjjg w^j l |!j£ l ■quired of tthe 'debtor | countries there' lacks a corresponding capacity to be paid'on the part of the creditor countries,” •EE Pi.'Wciv;.' ; V.v'..y

Debts owed-by one E ' country to another can also be “paitP- through foreign creditor’Dr Dernburg points out, and by

| means of these Germany, and also norif industrial' countries producing raw mate- *— to settle their international obligations without material flection ' from 1924 to 1928. W-ith the practical 'extinction of willingness to lend and

invest capital in foreign enterprise and

the drastic restriction of the exportaability,rof he.adds, gold became the sole medium of final settlement.

PRICE DROP. Lacking gold,'Dr Dernburg .continues, producer’s of Saw materials were ’ forced to dump them even below the producing cost, and thus add another \ element; to the forces depressing prices. ,v V The industrial debtor countries, also V’jshort of gold and unable to export ff, enough goods to pay their debts, en||ideavour to iCvemarp. by cutting dawn , imports. As a result, according to. Dr |jf Dernburg, the laying off of workmen, |< the lowering „of wages,;;, in, short, the : : flowering of 'domestic purchasing poive.”, 11 as the,, course a .country politically, in »I .Sdebt obviously finds itself forced into

v.l under the circumstances. (Referring to Sir Josiah Stamp’s statetjs irient that the fall of prices has raised ! , the buying power of gold to such a de- ; jgree that Germany's payments under the ; 5 young 'Plan are 'brought up virtually to ;the amounts of the , Dawes Plan, Dr .' Dernburg sav.i that any further rise in the value of gold must intensify the

present unserviceable distribution of gold in the economic world, -and thus perpetuate and exacerbate the evils, flowing therefrom.

To lead the -vvorld but of this impasse, Dr Dernburg sees subsidiary aid in the lowering of tar'it barriers, which would enable the debtor countries to export more, and, in tjhe export of capital by creditor nations to countries where pro-, ductive‘irivestmdilt is still'possible. He holds, however, that t'ftfe main desideratum is. the, scaling; down of,, international bbVigations, and as the portion privatelyj'bWed cannot ' come into question th& >: " piobl cm • ultimiitely turns on “what is to be done about the war debts.

. ; ■ THE WAY OUT. Vi : • The happiest solution,, he says, would ; coiufe from judicious concurrent applica- . iibn of the three means indicated, but ■•'calls special attention to the fact that very .narrow liinits should be drawn to an attempt at balancing the international v debts by means of credits, inasmuch as fresh borrowing by the debtor countries would only get them deeper in debt in the long run. The investment of capital, Dr Dernburg contends, should therefore endeavour to seek virgin countries—as was done before' the war—for establishing

new productive enterprises from whose yield possible loans couid be financed. Therein, however, he adds, would also lie the 'clanger of ultimately breeding new competition for industrial nations, and thereby reducing the exporting capacity of the debtor countries. . The problem of international indebtedness demands immediate solution, Dr Dernburg holds, because its baneful effect would continue with increasing intensity for at least two generations. The authors of the Young Plan, he says, well realised the dangers that might threaten their work, and he expressed the hope that the Bank for International Settlements will ri.se to the functional potentialities with which the Young Pi'an endowed it.