FINANCE—PUBLIC AND PRIVATE.
THE GREATEST OF ALL PROBLEMS—INTER- NATIONAL DEBTS.
(To TNE EDITOR or THE " SPECTATOR.")
Snt,—In common with the rest of the country, the City believes that the end of the coal strike is near, and hopes are entertained that, in some directions at all events, and especially in the textile industries, a moderate trade revival will follow a resumption of the coal output. Never- theless, it is only too clear to those who have eyes to see and a will to look ahead that by reason of the financial and economic upheaval of the Great War, with its stupendous effect upon the world's exchanges, and by reason of the huge international debts which have been created, we commence our new era of international trade under excep- tional conditions and, so far as may be judged, under conditions which are likely to handicap us in no ordinary degree.
Much has been said and written with regard to this subject, and also with regard to the extent to which we may be affected by quickened competition on the part of Germany. In business circles, at all events, the idea of the great indebtedness of Germany being likely to act as a kind of boomerang to other nations, and to Great Britain in particular, is not altogether a new one ; but I venture to think that it has been reserved for Mr. McKenna, chairman of the London Joint City and Midland Bank, to present the problem in a manner which should compel the attention of the whole nation. I make no apology, therefore, for devoting my letter to you this week to a consideration of a few of the points raised by him in his address delivered on Wednesday evening to the Institute of Chartered Accountants. I do so in the belief that even the brief comments I shall make upon it will induce many of your readers to obtain the complete address, which I assume will be published in due course.
Taking for his subject " International Debts," Mr. McKenna dealt first with the great change which has taken place in international indebtedness as a whole since the war, and then in the second part of his address he dealt in particular with the effect likely to be produced by the attempt of Germany to discharge her external indebtedness, and in that connexion made some practical suggestions to which I will refer at the close of this letter. After referring to the fact that before the war we were the greatest creditor nation, with foreign investments estimated in value at about £4,000,000,000, with France and Germany following behind us, Mr. McKenna showed that, as regards securities at all events, America was then a great debtor nation, her pre-war debt to foreign countries being estimated at over 1800,000,000. From this point Mr. McKenna proceeded to demonstrate another important truth—namely, that whereas previous to the war one of the greatest debtor countries, the United States, relied for the meeting of her external liabilities upon the export of foodstuffs and raw materials, the countries which now have great external indebtedness, such as Great Britain, France, and Germany, have been accustomed to rely upon their manufacturing activities as the means for paying for their imports from abroad. When, therefore, it is remem- bered that America, to whom most of these countries now stand indebted, has herself, as a consequence of the conditions of the war, also become a great manufacturing country, the complexities, not to say the difficulties— from our point of view—of the new post-war situation become apparent.
Taking the £ sterling for the moment as representing its full gold value, Mr. McKenna showed that the general position of relative international indebtedness after the war stands roughly as follows : Germany's debt for reparations is assessed at about £6,600,000,000, while the total debt due to the United States Government in respect of obligations arising out of the war, including arrears of interest, but excluding Russian debt, is about £2,240,000,000, of which Great Britain is responsible'for E950,000,000, and France and Italy for about £760,000,000 and £370,000,000 respectively. France, of course, also owes us about £560,000,000, and Italy about £476,000,000. Russia is left out of account owing to the exceptional circumstances of that country. It was, however, upon the problem presented by the German reparation payments to which Mr. McKenna directed chief attention, his object being to demonstrate, first, the menace threatened to our own export activities, and, second, the means whereby the menace might to some extent be lessened. On the question whether the reparation payment imposed upon Germany was just or unjust, Mr. McKenna did not enter, recognizing, no doubt, the wisdom of confining his observations to a consideration of the position from an economic standpoint without any kind of reference to politics. Briefly, therefore, his point was that Germany can only discharge her enormous liabilities by a vast increase in her exports of goods and services. Under the reparation arrangements Germany has to pay her foreign creditors a minimum of £150,000,000 a year, and a maximum of nearly £400,000,000, and, of course, the whole point of the situation is that it will be impossible for Germany thus to expand her exports unless she is able to reduce her costs of production so as to cut out other countries in the export trade.
In this connexion there is, of course, the possibility to be considered of the German wage-earners being unwilling to work on terms which would enable the country to thus expand her exports. At present, however, all the indi- cations show that they are willing and that progress is being made in the matter of competition with other nations. Moreover, it is impossible, as Mr. McKenna says, to fail to notice the extent to which before the war both Germany and Great Britain " produced for export similar articles and sold them in competition with each other in the same foreign markets." Great Britain and Germany, he added, " were by far the greatest exporters of manufactured and partially manufactured goods. In 1912 the total export of articles of this class from all the manufacturing countries of the world amounted to not more than £1,300,000,000. Of this total the United Kingdom and Germany alone were responsible for r700,000,030." Thus it will be seen that Germany has been our greatest competitor for the world trade in manufactured and partially manufactured goods, and Germany's present enormous indebtedness, plus the export duty on her goods, must necessarily compel her still further to strive in the direction of cheapening production in order to compete successfully. Nor must it be over- looked that while the Allies will, in a sense, be receiving during these years of German competition reparation payments, the greater part of such payments will go to France, while as against the comparatively small amount due to this country we shall have to stand the brunt of the accentuated German competition in every market of the world.
Space prevents my going more fully into Mr. McKenna's admirably lucid presentation of the commercial and economic problems involved in these German reparation payments, but I must add one word with regard to the suggestion which he made with regard to the matter. Opinions concerning it may differ, but it is at least eminently practical, and, so far as I can judge, it is likely to receive a considerable measure of approval in commercial circles. Briefly, the suggestion' is this. Under the terms of the existing reparation scheme the Commission have power to call for payment by Germany of any kind of goods to the value of £100,000,000 a year, and therefore, says Mr. McKenna :—
" Nothing stands in the way of Germany being required to send to this country and rrance and the vest of the. Allied countries. to each according to its requirements, articles such as coal, timber, potash, sugar, all of which Germany produces in great quantities. It would mean undoubtedly that much German capital and labour would have to be withdrawn from manufacture and devoted to the production of the materials required by the countries to which sheds indebted, but this is a penalty which German industry might very properly be called upon to pay. I know that by means like these no such figures of value could be reached as those which settled Germany's ultimate payment at nearly £400,000,000 a year. But at least there would be no disturbance of British trade and there would be no external pressure keeping down German wages to a point which would ensure successful competition with us in foreign trade. Germany's manufactures and shipping, so far'from being benefited, would be at this disadvantage m competition with ours that Tier ability to devote capital and labour to them would be largely restricted."
I suggest that in these proposals of Mr. McKenna, who, be it remembered, speaks not only as a banker but as an ex-Chancellor of the Exchequer, there is abundant scope for practical discussion, and I shall be surprised if the many economic readers of the Spectator have not themselves some practical suggestions and comments to put forward. Of one thing there can be no question—namely, that this address of Mr. McKenna constitutes a most courageous attempt to deal at close quarters with what I have ventured to describe in the heading of my letter as the greatest problem with which this country is confronted. If I might add one word of criticism, it is that the City would have been glad if he had also taken the opportunity of emphasiz- ing the supreme importance of the nation seeing in these possibilities of German competition yet another reason for more strenuous labour, accompanied by simpler living on the part of every section of the community. Presumably he considered that the conclusion was so obvious as to require no emphasis.—I am, Sir, yours faithfully,
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