A Period of Revelation

King Country Chronicle, Volume XXVI, Issue 3442, 12 March 1932, Page 1 (Supplement)

A Period of Revelation

That the world is a year older may be neither here nor there. If it is more than a year wiser—as we fully believe, comparing the state of its mind to-day with twelve months ago —that is all to the good, and the best of warrants for looking forward with faith and hope. It has been a year of shocks and disillusionments —of successive crises and continuous alarms. It keeps up to the bitter end its record of agitation, confusion, and turmoil. But the noise is in greater part the clatter of falling fallacies. We are infinitely closer to things as they are and therefore to security—than we were a year ago.

Ever since the Armistice we have had fictions for our masters. When history looks back upon the involved story of war debts and reparations it will have the sense of a wild phantasmagoria an infatuation and a madman’s dream. The conception imposed on us by the politicians of Versailles has had to shed one preposterous integument after another in successive collisions with reality. It is on the verge to-day of final discredit and repudiation. The nightmare legend of a world in tribute still engages the energies of grave debate in centres so widely apart as Washington and Basle But when facts are about to “take charge,” as the engineers say, nothing receives more ironical emphasis than the relative unimportance of what is said in deliberate assemblies. The coming event casts its shadow far too deeply and firmly to be deflected by the findings of any committee. The Young Plan may be sublimated into a younger and a youngest, and they will all go the same way home. Whatever be the exact form of the denouement, the great financial delusion that has bedevilled the world’s, business for a dozen years is in its last convulsions.

The project of transferring huge masses of wealth from one country to another in satisfaction of war debts and reparations must at the best have been attended with a profound disturbance of all economic interests and processes. But under the conditions set for it by the two chief creditor countries, it was bound t;o tie itself into the knot of sheer impossibility. The climax has been postponed by one expedient after another, but is at last upon us, Wealth consists, in the overwhelming main, of commodities. The world’s money is, at the utmost of true valuation, but a fractional part of its possessions. Its total stock of gold is estimated at less than £2.500,000. If wealth is to travel steadily from one country to another on the scale of tenfold millions, it must move in the form of goods, while gold is used merely to redress marginal balances. That is the normal course of trade, and it was the only course by which the prescriptions of the VersaPles Settlement and the American Debts Settlements could have been even limpingly fulfilled. But the principal receiving countries could not bring themselves to face such an inpouring of commodities. They feared —perhaps with reason—tihe competition of these unpaid imports with their own economic industres. America, the chief ultimate receiver, raised her tariffs higher than ever, with the result of compelling the maximum of payment in gold itself. . Thus began the steady dram ot gold to America and to France through which the pinch of the settlements has been accentuated everywhere and the fall in the world-price of commodities has brought about a general semi-paralysis. The world at large, with its stock of international currency depleted, has seen its producers impoverished by deflated markets, while its collective liabilities to the receiver Powers increased with its every effort to liquidate them The less gold there is the cheaper do goods become, and the greater the mass of them that is needed to satisfy a gold debt. The faster the debtor nations stripped themselves of their gold to satisfy their creditors, the greater became the real burden they had still to discharge. Mr Mellon has just told the American Senate that what was an annual debt liability of £32,800,000 from Great Britain has become one of £48,100,000. It is the same story for all debtors, and one that must grow more stringent and monstrous as time diminishes their resources in the standard metal and their liabilities are increased by its remorseless measurement. If the process went on to the bitter end, and we could imagine flesh and blood rendering complete submission to figures and figments, the whole possessions of the debtor countries would at last be inadequate to meet a fraction of their nom'nal obligations ! The late Mr W. J. Bryan was not a very profound thinker. But history has come much nearer than his critics could have expected to seeing “ mankind crucified upon a cross of gold.’’ That is what comes of treating gold as an of mistaking

WAR DEBTS, REPARATIONS, AND GOLD. “ BURDENS NOT TO BE BORNE.” THE ENDING OF A NIGHTMARE. (Reprinted from the Observer, London.)

the strictly conditioned symbol of of wealth, for wealth itself, of thinking in forms instead of in facts, and of imagining that? the generalisations drawn from ordinai’y economic life would hold good for extraordinary and unprecedented circumstances. The field of economic thought is fertile in such tragedies of self-deception. At the best we do not believe that the system of gigantic gold debts could have been carried very far without being arrested by its own monstrous consequences. But, as fate would have it, the forced draught upon gold brought its accumulation into the hands of nations inapt to make the wisest use of them. If the gold standard operated without friction in pre-war conditions, it was because its control rested mainly with those who understood what the Macmillan Committee has called “the rules of the game.” We should prefer to put it that the instinct and experience of the London money market saw to it that gold was sent out again upon its travels as fast as it came in. The tradition of foreign investment kept the standard metal in circulation, reinforcing the energies of debtors as speedily as they paid their dues. France and America have had hurled at them the- impatient taunt of “ Shvlocks.” If only they had enjoyed Shylock’s insight into the distinction between “ breeding ” and “ barrenness ” !

The creditor Powers could not allow themselves to be persuaded by their own wisest counsellors of what was involved in their cellars full of idle gold. It meant the steady impoverishment of the other nations, their inability to continue as customers of the receivers of tribute, and an ultimate visitation of the latter by falling exports and unemployment. This consequence has come in full blast upon America, with the unfortunate effect for the moment of making popular economic vision even more clouded than before. We read of Senators demanding that their country shall continue to be paid in gold and nothing but gold, in half-hysteri-cal alarm that the deepening depression for which this very insistence upon gold is so much responsible. But it is of little consequence now what is further said in places where men speechify. Nor can the inevitable procession of notes, reports, memoranda and so forth have any material influence on the remainder of the drama. The world has staggered as long as it could under the selfmultiplying load of reparations and war debts, and it can stagger no longer. The burden is about to drop. No one who casts a cool and clear eye around the horizon to-day, or who reads the conclusions of the Basle report, can have a moment’s doubt of it:

The question of prolonging President Hoover’s moratorium has become purely academic. What is required of the debtor countries by the letter of their bond has become a physical impossibility. More than that, the change in the price level and its effect upon the reality of gold debts has made their nominal obligations monstrous in point of equity. We cannot expect the creditor Powers to realise these things at once—or to appreciate, until the fullness of time, how they have contributed to the frustration of their own requirements and expectations. The Macmillan report of last summer set forth very plainly the certainty that unless the gold receivers showed “a greater willingness to buy” and “a greater willingness to lend,” the system of debts and reparations payments — shored up by one transient “plan” after another —must come to an inevitable and not distant collapse. It was possibly too late for remedies even then. It is certainly too late now. We hope that what is coming will be attended with the minimum of bad blood. Economics is at the best a highly empirical “science,” and it is but too easy to imagine that the conclusions drawn from one sphere are applicable to another. The blindness that has hastened the crisis is neither French nor American, but only very human. The mistakes that have drawn the pattern of this story have been of tragical dimension, but for the moment we must be thankful that error has all but reached the end of its chain. It is an assurance that brightens the days that are soon to come.