Finance—Public & Private
Restoring Confidence
AT first sight at all events the outlook for the World Economic Conference called for June 12th is not an encouraging one. I say " at first sight " because we are living in times of such rapid changes and developments that it is almost impossible to say what may be round the corner. Only last Monday, for example, we had the City in a state of agitation with regard to the possibilities of a disturbance of the peace of Europe, and this was followed on Tuesday by a general rally in securities based, to some extent, upon President Roosevelt's'pronouncement sug- gesting partiCipation by the United States in European affairs, which would be along the lines of general assistance in preservation of Peace. It remains to be seen, therefore, whether the World Conference will meet under conditions promising a more hopeful outlook for the preservation of world peace, without which it is certainly useless to anticipate that world depression can be removed even by any skilful international economic conference.
SOME ESSENTIALS. •
In fact, while the causes of world depression are many and opinions as to the precise causes are probably still inure numerous and even conflicting, there would probably be general agreement on two main points, namely, that the re-establishment of political and financial confidence is essential for any revival of international trade activity and of world prosperity. It is for the political rather than the financial writer to discourse upon the best methods for the re-establishment of political confidence, but there is a very clear recognition in the City of the difficulty which may be experienced in the re- establishment of financial confidence, and yet if there is to be an industrial revival we must have a restoration of confidence in such matters as the sanctity of contracts and the credit of nations, as well as of individuals; and if there is to be confidence in a re- established gold standard, there will have to be a very clear understanding of the manner in which the gold standard is to be worked by the different countries and very . close agreement with regard to the rules to be observed.
CAUSES OF IMPAIRED CREDIT.
If the first few days of the Economic Conference were devoted to a kind of mutual confession demons- tration, I imagine that there would be few, if any, nations who would not have confessions to make of acts which in varying degree have contributed towards the lack of confidence and the undermining of credit.
The flagrant default of some foreign countries due• not merely to the fall in world prices but to extravagance in expenditure, the devaluation of her currency by France some years ago on lines inflicting injury upon foreign creditors, the political disturbances in South American countries with their disastrous effect upon the credit of their Governments, the abandonent by the United States of -the gold standard and the repudiation of gold clauses in the Bond Contracts by the United States as a pure matter of. expediency and policy and not by reasons of necessity, to say nothing of the extent to which credit has been injured by either reckless or fraudulent financiers in different countries. These have alll played their.part in bringing about the present lack of confidence. And in the case of the United States it must be remembered that the reckless policy pursued over a period of years, with utter disregard of the effect upon world trade, has also played no small part in aggravating world depression. Nor must there be left out of account the shock imparted to all countries by Britain's abandonment of the gold standard in 1931. It is true that we were to a large extent forced off gold by the action of other -countries in drawing the metal from us, and it is also true that we made some heroic though futile sacrifices to maintain the gold standard. Nevertheless, it is also true that our enforced abandonment of gold was connected with many years of extravagance- in the national finances and of political pandering to Socialist demands, a course which steadily weakened our economic strength and which shook the confidence of other nations.
PROBLEMS. TO-BE SOLVED.
At the forthcoming Conference there will doubtless countries, be free discussion of - many of the economic problems with which the world is confronted and upon the solution of which depends the chances of a speedy recovery from the prolonged depression. War behts, reorganized currencies, removal of exchange restrictions, tariff agreements, the position of defaulting and the assistance .to be given to necessitous countries are among the many subjects which will have to he reviewed, and it will certainly not be surprising if the Conference should last for many months. I suggest, how, ever, that there is one paramount consideration which must be kept in mind, namely, the observance, so far as may be possible, of past contracts if there is to be confidence in fresh agreements. Admittedly the cost of the War and its ultimate effects were so overwhelming as to make it impossible for many of the Debt contracts to be fulfilled in the letter. They must, however, be fulfilled in the spirit or there can be no confidence in the future. That a distinction may have to be made between War Debts and commercial debts is probable, but even in that delicate matter there should be no insuperable difficulty in discerning the equity of contracts, the fulfilment of which has been difficult during recent -years for the debtor countries, while their fulfilment has also in many cases been detrimental to the free working of inter. national trade.
Another consideration, which should be kept pro. minently before the Conference, is the desirability of securing, so far as may be possible, a greater measure of equilibrium in the international trade balances. One of the greatest disturbances of international trade during the past years has been the chaotic state of the exchanges, but that chaos, in its turn, has been largely due to the disturbance of the comparative equilibrium of the trade balances which existed before the War. If, therefore, at the end of the Conference, through inability on the part of the United States to realize its great responsibilities in the matter of War Debts, or through other causes, this state of disequilibrium were to be unchanged, it is difficult to believe that any system of international gold standards or tariff and trade agreements could be devised ensuring an early return to the free working of the international exchanges. Yet without such free working there can be no return to international trade activity as it existed before the
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