The Wanganui Herald (Published Daily.) MONDAY, FEBRUARY 9, ]920. THE AMERICAN MONEY CRISIS.

Wanganui Herald, Volume LIII, Issue 16045, 9 February 1920, Page 4

The Wanganui Herald (Published Daily.) MONDAY, FEBRUARY 9, ]920. THE AMERICAN MONEY CRISIS.

Although there is grave anxiety in the commercial hanking community over the question of American exchange, the average man, who will eventually have to pay the bill, is quite indifferent to the seriousness of the position. Probably this is due to a complete or partial ignorance of international finance and its effect on the individual. Merely from an exchange point of view the position is fairly simple, hut it can lead to complications too intricate to be explained in a short article. Suppose that an American debtor (A.8.) owes a British creditor (8.C.) £IOO. At the same time a British debtor (8.D.) owes an American creditor (A.C.) £IOO. The position might he written; A. owes B.C. £IOO B. owes A.C. £IOO Instead of each debtor paying his creditor, the American debtor, through an American bank, pays the American creditor, and the British debtor, through a British bank, pays the British,, creditor; and the banks merely make cross entries in their books, which balance the account. Suppose, however, that the position is; A. owes B.C, £IOO B. owes A.C, £l5O. Each debtor can then pay the creditor in his own country £ 10 0; but there is a balance of £SO still due by B.D. to A.C. This balance must be paid by the shipment of £5 0 in gold to America. Now, the shipment of gold to America is expensive, so that before he ships the gold the British debtor looks round to discover, if possible, a British creditor of America to whom he can pay the £SO. Suppose, then, that instead of one British debtor there are two or more anxious to pay the one creditor. Each debtor, rather than go to the expense of shipping gold, is prepared to hid against his fellow debtor for the right to pay the British creditor. Before the wav a debt of 4.05 dollars due in America by a British creditor could usually be paid in London to a British creditor with about one pound sterling. Now, however, owing to the fact that there is far more due to America by Britain than there is due to Britain by America, the pound sterling in London will pay a debt due in America of only 3.25 dollars. That means then that, by a fall in the dollar valiie of a pound, the British creditor of America makes an added profit, not out of the American debtor, but out. of the British debtor to America, In normal times the British debtor, who cannot arrange to pay the whole of his debt as above explained, • must either ship gold to America or he must induce some American to buy goods from him to the amount of the balance. At the present time, however, the debts due from Britain to America are so enormous that all the gold in Great Britain cannot pay the debt, so that the only alternative is to produce goods, and induce Americans to buy them. But before we can induce Americans to buy our goods, we must offer those goods to them at least as cheap as they can buy the same class of goods in America, so that the British producer must undersell in America all his competitors. That, from the point of view of the banker, is the whole problem: but to the political economist or the statesman the difficulty only begins here. To undersell foreign competitors we must produce goods at a lower cost; and to produce at a lower cost we must buy raw materiaL cheaper, pay lower wages, lower interest, lower rents, have better organisation, better machinery and better methods: and the question is, which of the different classes is to reduce their profits first and most? Quite naturally the land owner and financier, whose interests are identical,' will urge the worker to work harder and accept lower wages. But without doubt the worker has justice on his side, when he claims that high wages are not the primary

cause of high prices, but the result of high prices. When the waxbroke out the prices for food, clothing, minerals and primary products were increased by the owner long before wages showed any sign of increase. It was to meet the increased cost of living that workers were forced to demand higher wages; and we have to admit that, while some workers may have increased the purchasing power of their wages, the great mass of the workers are worse off to-day than they were before the war. Take, for example, the public servants, the clerical worker and average wages man in this country. Quite naturally, also, the workers point to the enormous profits made by the land owners, financiers and primary producers out of the war, and they ask, with perfect justice, why should wc he expected to make further sacrifices while these men still have in their pockets these huge profits? The workers suffer first and most on the outbreak of war, and they suffer first and most on the inevitable depression that follows. 'Without doubt all classes in Britain will have to share the burden, but some method should be found to compel those who profited by the war to pay the cost.