FINANCE—PUBLIC AND PRIVATE.
THE FOREIGN EXCHANGE TANGLE. [To THE EDITOR OF THE " SPECTATOR ") SIR,—A cartoonist—I think it was Foy—recently depicted John Bull with a quantity of luggage (" exports '') awaiting assistance with it to the quayside. His difficulty, however, according to the cartoon, consisted in the fact that all the porters, bearing labels with the title of " Foreign Exchange," were flat on their backs■ and the suggestion was that the demoralization of the exchanges was such as to prevent our manufacturers from dispatching goods to many foreign countries because of the difficulty of arranging a basis of payment. As in all cartoons, the situation was perhaps a little overstated, because amidst our present economic and Labour difficulties we might find our export trade slack even if the foreign exchanges were normal. Nevertheless, the main suggestion remains true—namely, that part of the present trade depression and the consequent unemployment can be traced to the chaotic state of the exchanges, and that is why there is talk of aiding exports by State credits.
The countries which have suffered the greatest deprecia- tion in their exchanges are, of course, certain of the belligerent nations such, for example, as Russia, Austria, Poland, and Germany. In the case of the first-named country, Bolshevism, combined with the watering of the currency, has made the rouble valueless as measured in the currencies of other countries. The case of Poland, too, is almost desperate by reason of the extent of the depreciation in its currency, while that of Austria, which I will take as a concrete example of the problem to be dealt with, is also sufficiently serious. Previous to the war 24 Austrian kronen exchanged for £1. To-day the quotation is something like 7,000 kronen to the E. In other words, to pay for English goods to the value of sterling an Austrian merchant would have to remit crowns for the equivalent, on the old basis of exchange, of something like £300 ! Therefore it will be seen that an Austrian merchant desiring to import a certain quantity of wool or some other commodity for manufacturing purposes finds the price as expressed in exchange almost hopelessly against him. Not altogether hopeless, because, while the price the Austrian manufacturer has to pay is terribly high, he may still be able to make a profit on the finished goods, if not from exporting to some other country, at least from internal sales. Unfortunately, however, there is another difficulty to be faced. It is customary to finance trade of this description by billt usually running for three mortis, and the exporter has to ask himself whether, when the time for payment comes, lliv customer in Austria will be prevented from meeting the bill through the krone having still further depreciated. On August 29th, for example, the Austrian exchange on London was quoted at 3,150 kronen to the £, while just a month later the quotation was 6,500 kronen to the 1 ! Moreover, with the exchange in so feverish a condition it might even happen that the very efforts of the Austrian importer to purchase sterling would run up the price of the krone to an absolutely prohibitive level.
What is true of Austria is true of many other countries. Is there a remedy ? Perhaps the best reply to that question is the one which was given—and it was given unanimously—by the forty delegates who attended the Economic Conference of the League of Nations at Brussels more than a year ago. The recommendations of that Conference were adverse to the situation being met by State credits, but a scheme was devised which was to have the support of the governments of the various lending countries for arranging—again I deal with the concrete instance of Austria—that the Austrian Government should consent to aid imports of those commodities most calculated to set the wheels of industry in progress by giving to their importers a bond secured on assets of the Austrian Government itself. The control of those assets for the time being was to be in the hands of representatives of the League of Nations, and the Austrian Government (the same principle applies to the other impecunious nations) was further to undertake to effect drastic economies in its own expenditure and reforms in its own currency. In other words, everything possible was to be done to give security to the exporter, who was to receive the bond I have referred to as security to pledge with his banker, while it was considered that if Austria carried out its part in the matter of internal reforms, and if the imports were concentrated upon the most desirable articles, steadiness, if not actual improvement, in the value of the krone could be anticipated. The scheme, in fact, though not perfect, was regarded as workable, but it required for its inception that Austria should be able to mortgage the necessary assets foe the purpose I have named. As a matter of fact, however, a first mortgage upon those assets had already been given to the governments of the various countries, including America, in return for food credits, and up to the present it has apparently been impossible to secure the unanimity between these nations necessary for freeing the assets in question.
In addition, however, to this plan, known as the Ter Meulen Bond scheme, the British Government also put out various schemes, and some time since authority was given to Parliament to expend, if necessary, twenty-six millions in aiding exports to the impecunious countries of Europe. Very little, however, has been spent, because it was always found impracticable to devise a thoroughly sound scheme. Now, under the stress of acute unemployment, the Government is apparently desirous of expediting the use of the credits voted, and it is believed that the banks may be asked to facilitate in every way the financing of our exports to foreign countries, the Government giving its own guarantee up to a certain percentage of bills drawn against the transactions, approved by the banks, leaving those institutions to handle the remaining balance of risk. Without desiring to over- emphasize the fact that such proposals (if made) have manifestly resulted from the pressure of the unemploy- ment problem, I suggest that there are some aspects cf them which require careful consideration. If Government aid were to take the form, as I have said, of guarantee- ing certain documents, then the instruments would be quite acceptable for bankers' portfolios, and arrangements for their renewal would be an easy matter. All the same, this contingent liability would not help the national credit. And, assuming that the volume of bills guaranteed by the Government was large, it is probable that when a genuine, as distinct from a subsidized, trade revival commenced, bankers, even if they renewed these particular bills, would throw over lines of maturing Treasury Bills.
Apart, moreover, from these considerations, much of the business which took place under such an arrangement would probably be of an undesirable character. Already bankers have readily aided their customers in exporting to foreign countries where a sound proposition was put up. Probably they have even gone a little further and hake taken risks which, under more normal conditions, they would have reiused. If, therefore, State credits are employed, there seems the danger that they may be used on a class of business which but for such credits would be rendered impossible by reason not only, perhaps, of the risks, but even of its undesirable character. It would, in fact, be infinitely better if State aid were confined to the limits prescribed at the Economic Conference at Brussels, leaving the actual financing to private interests.
Finally, there is the danger in all these remedial schemes of attention being diverted from the supreme necessity for each one taking his part in the redemption of the country from its present economic troubles by working more strenu- ously and living more simply. What should we think of Germany if at the present time, with her grave economic problems, she said : " At all costs the mass of the com- munity must have proportionately higher wages, live better and work less than before the war, and to that end, if necessary, we will subsidize exports to countries which cannot pay. At all events, employment and good wages will result " ? I think we should say that of course it was Germany's affair to do as she thought well, but that insolvency was only a question of time. I know this analogy is an imperfect one because Germany is, in a sense, expanding credit to stimulate her exports ; yet not only are these exports to countries able to make payment, but simpler living and more strenuous working are the order of the day with German workers. In other words, the only forces which can make for the creation of new wealth are in full operation. If the plans of our Govern- ment for relieving unemployment through stretching credit were accompanied by drastic economy in national expenditure and by a changed attitude on such matters as the minimum wage and short hours of working, there would perhaps be less reason for anxiety ; but if credit expansion is still to be accompanied by high Government expenditure, bureaucratic control, and a Government bolstering up at every turn of the uneconomic demands of Labour, then it is a case of the candle being burnt at both ends, and there can be only one result.—I am, Sir,
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