Debts and Gold
DEVELOPMENTS at both Washington and Geneva in the past week justify new hopes of the return of the world to some measure of economic sanity. The possi- bilities opened up—a debt agreement with America as prelude to a World Economic Conference meeting with an agreed agenda—are immense, but we do well to remember that for the moment they are only possibilities. Take Geneva first. It is obvious that one of the main preoccupations of the gold standard countries is to lead this country back into the fold, into which it is hoped it will be followed by the other members of the sterling group. Peculiar interest therefore attaches to the Preparatory Commission's annotations to the proposed agenda for the World Monetary and Economic Confer- ence. The annotations, being an exceedingly compressed summary of the gold discussions which have been agitating the world for three years, contain matter enough for a volume of elucidation and possible controversy. The main considerations which have inspired the authors are, however, clear, and will probably command reasonably general acceptance both among those who have so little gold that they are conscious of its value and those who have so much that they are conscious of its limitations. The Preparatory Commission observes that in the absence of any (presumably any other) international standard likely to be universally acceptable, the Confer- ence will have to consider how the conditions for a success- ful restoration of a free gold standard can be fulfilled, and this statement of the terms of the problem is at least as important as any of the subsequent observations regarding the conditions necessary for its solution. It is a recognition of the fact that no standard will work without international management and co-operation, and that given the necessary degree of co-operation, the gold standard, which is as much a managed one as a more fancy brand, is as likely to work as any other, and more likely in the circumstances, which include psychological factors, to be accepted and put into operation.
If, however, a standard is to be re-established, there are certain conditions to be satisfied, some of them before re-establishment and some of them after. An improve- ment in political conditions will help to restore that confidence without which countries will hesitate to return to the gold standard. A settlement of inter-Governmental debts " would be of particular value." A return to a . reasonable degree of freedom in the movement of goods and services, in the foreign exchange markets and in the movement of capital is required. The Preparatory Commission was an international body and there is no indiscreet insistence on the prior attainment of these conditions. This is not only diplomatic but reasonable, for the order of nature and the order of logic are not necessarily identical ; profound economic depression creates political unrest, internal and external, while
• political unrest in its turn only serves to deepen and prolong the depression. There can be no reasonable doubt that discussion of all the factors must proceed pari passu, the world's economy being an organic whole, and that the prescribed remedies, when once there is agree- ment about them, be administered as the patient's general condition permits.
As regards the conduct of affairs after the re-establish- ment of international exchanges the Commission makes various recommendations, some technical and some political. They are of the kind on which emphasis must necessarily be laid if stability of prices is to be the .object, and they are not likely to arouse acute contro- versy. But there is a slightly ominous sound about the statement that is not the intention of the Commission " to suggest that anything should be done which would in
any way limit the freedom of action and reduce the respon- sibilities of central banks in determining monetary policy." This is perilously like the consecration of that doctrine of national sovereignty which throws its shadow over Geneva. If the international responsibilities of central banks are increased, their freedom of action must neces- sarily be limited, if only by a self-denying ordinance.
Simultaneously with the publication of the Preparatory Commission's annotations comes the news from Washington that the incoming administration would be
glad to receive the British Government's representative early in March for the purpose of discussing debts. It is
impossible to exaggerate the importance of this develop- ment. However discreet the terms employed by the Preparatory Commission, the whole of the world, including both the creditor and the debtor portions of it, is well aware that the re-establishment of the gold or any other standard and the restoration of general economic health are strictly dependent on the precedent or synchronous cancellation or drastic reduction of international dead- weight debt. Had this problem lain dormant until Mr. Roosevelt was firmly in the saddle, there would have been little hope that the World Conference could usefully have been summoned before the autumn. That the President-Elect has decided that politically valour is at the moment the better part of discretion is a matter for international congratulation.
The White House statement also contained an inti- mation that it " would, of course, be necessary to discuss at the same time the world economic problems in which the U.S. and Great Britain arc mutually interested." It is natural enough that the world's leading creditor Powers should exchange views on the complex of economic pro- blems which face them and cannot be solved without their collaboration. It is even more natural that the U.S. Government, faced with the necessity of making a large apparent sacrifice, and invited by its debtors to regard adjustment of debts as a means—or rather as one of the means—to an end, should desire to know what prospect there is of the end being attained if the means is used. It may even be necessary, in deference to the less well- informed elements of opinion in the U.S., to represent any concession made on the debt question as part of a bargain, the other side being represented by the British return to the gold standard. We need not, therefore, be unduly alarmed by the fact that, according to the Washington correspondent of The Times, the March meet- ing is being " inelegantly described as one of the greatest give-and-take scrapping contests ever started." There was a tendency not long ago, in political circles in the U.S. to link disarmament and debts ; there is, of course, a connexion between the two problems, but no very direct one. If foreign debts are reduced to manageable proportions economic nationalism will have a less fertile breeding-ground, and with the return of prosperity and a willingness to countenance the interdependence of the world's trading units political nationalism and the arma- ments which it evokes will also decline.
Similarly, there is an undoubted connexion between debts and the restoration of the gold. standard. There will be no restoration of the gold standard unless and until there is a resettlement of debts. But this resettlement, while the most• important precedent condition, will not in itself ensure the maintenance of the gold standard. There would be nothing gained by concealing the fact that this country does not propose to return to gold.until there is a reasonable moral certainty that it can stay there— which requires a definite amount of continued inter- national co-operation, on the lines indicated by the Preparatory Commission, in working the standard. We are not asking the United States, in the matter of debts, to abandon something beneficial to themselves ; on the contrary, informed opinion in that country, as well as here, is abundantly aware that interest payments are a bagatelle in comparison with the profits of prosperity. On our side we must make it perfectly clear that we could. not adopt, as part of any bargain, a standard which we might again be forced to abandon in the continued presence of monetary and fiscal practices inconsonant with any kind of stability.
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