Prosperity and Prices
THE Lausanne Conference, on which the world is fixing its eyes in a kind of pathetic desperation, is now less than a month distant. The conference is to deal with three subjects—German reparations, non- German reparations and monetary and financial questions in their international aspect. The third item on the agenda is almost incalculably important, even more important in some respects than a reparatiOn settlement itself. For, until the world can somehow shake off the deadweight of depression which constantly falling prices, Particularly the prices of primary commodities, involves, trade will continue to stagnate, enterprise will remain paralysed and unemployment everywhere increase. On another page a well-qualified observer records his impression of Berlin as Berlin reveals itself to a foreigner to-day. There the stagnation has gone far beyond what we have experienced here. Disaster, for Germany, is no farther off than just round the corner. When it comes, if it does come, we cannot, as Professor Robbins all too justly observes, expect to remain untouched by it ourselves.
Germany, of course, has her special problems, and a reparation settlement is a matter of peculiar concern for her, though as she has been paying reparations so far mainly with borrowed money, and is never likely in any case to pay more than a fraction of the liabilities laid on her by the Young Plan, the relief will be more psycho- logical than material. To say that is not to detract froM its value. The whole basis of all considerable financial relationships to-day is psychological, for credit depends on confidence, and confidence is essentially an attitude of mind. In any case a real reparation settlement—and the nearer it comes to the complete cancellation of repara- tion payments the more real it will be—will change the whole international atmosphere, not in Europe merely, but in the United States, where the curse of the undis- charged and undischargeable liability overhanging the chief industrial country on the European continent is recognized as the cause, unmistakeable if indirect in its working, of some part at least of the unexampled adversity that has fallen on the American people. The British delegation at Lausanne will go with its mind perfectly clear on that point. It starts from the conviction, stated quite definitely by the Chancellor of the Exchequer, that the best thing that could happen for all concerned would be for both reparations and debts to be wiped out altogether. Debts, so far as they concern the United States, will probably not be discussed at Lausanne at all. In any case a reparation settlement must come first. And in connexion with that it must be remembered that to cancel debts and reparations together, while it would leave this country practically unaffected, since our receipts and outgoings and incomings under those heads virtually balance, would involve France in a loss of £20,000,000 a year. France, therefore, has an unanswerable claim to be heard when the complete abolition of reparation pay- ments is under discussion and some compromise solution, under which Germany would still make some payment, on a drastically reduced scale and after a moratorium of some years, is not to be ruled out in advance.
It would be satisfactory to believe the British dele- gation will set out for Lausanne with its mind as clear on the third item of the agenda, monetary policy, for the adoption of some definite line there, both on a national and an international scale, is as urgently im- perative as the settlement of reparations. It is idle to be impatient about discussions on monetary policy as savouring of the unpractical and the academic. As
long as we trade we must use money in some form, and as long as we use money we must have a monetary policy. The gOld standard itself is a monetary policy. To-day the first problem is to raise priceS, and the second is to avoid raising them too much. The cause of most of our present ills is deflation. But unregulated inflation might easily be the cause of far more. The task, and a very delicate one, is to reverse the engine and keep it so for a certain time and no longer. - Within the proper 'limits, if they can be observed,- the deliberate encouragement of a rise in gold prices is manifestly the right policy to pursue. To-day falling prices are producing all the effects made familiar by generations of text-book writers. Purchasers put off buying because they hope to be able to buy cheaper later on. Manufacturers Cut stocks down to the lowest point and produce nothing except on order because they fear prices will be ruling lower in three months' time. Enterprise is petrified and there is a perpetual sense of something worse to come. That has been going on for two yeark and more. Since .1929 commodity prices have dropped by 80 per cent. Many primary commodities have dropped by much more, and agricultural States with external debts to pay find the burden, represented in commodities, insup- portable. The prospect of a gradual and governed return to the 1928 or 1929 level would infuse a new spirit into the business world. Manufacturers with the prospect of selling at a sure profit would set works going full time that are running at half pressure or less to-day, and with raw material getting dearer they would place their orders as soon as possible and . as largely. Employment would increase and the burden of inter- national debts contracted on a gold basis would begin to shrink towards what it was when the commitments were first made.
Not all the wisdom of all the statesmen in the world is going to make that process easy or. its execution free from risk. But there is more risk still in letting things drift. Recognition of that is spreading steadily, as recent debates in the House of Commons have shown. Sir Robert Horne has been advocating a 2 per cent. bank rate and the purchase of securities by the banks. We have actually a 21 per cent. bank rate, but the value of that is limited so long as the joint stock banks are charging 5 per cent. for overdrafts. And facilities for borrowing are not much good unless the spirit of enterprise and hopefulness is there to stimulate borrowing. In pumping money into the market by the purchase of Government securities the Bank would be following the example of the Federal Reserve Bank in the United States. The results of the operation there arc not very clear yet, but the complexity of the financial situation in America is such that there is no justification for discrediting a method which must sooner or later produce the desired results.
Restrained action along these lines in this country is to be advocated, but it is the world price level that needs to be raised, and in no field is concerted international action more essential. In any discussions on these questions at Lausanne the United States would certainly be ready to take part. While the Basle Committee was unquestionably right in declaring last August that the essential condition of Germany's recovery (with which Europe's is bound up) was the restoration of political confidence, there are technical measures that must be taken as well and taken by the nations in concert. Lausanne will provide the first opportunity of considering them, and it will be a disaster if full use is not made of it.
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