112 PRESIDENTIAL ADDRESS SECTION F. 



greatest gold-producing country in the world has, he says, demone- 

 tised gold. This is, at first sight, true, and constitutes a real 

 difficulty either to understand or to defend. The mordant criti- 

 cism of Professor Cannon ignores the relativity of economic policy. 

 What is best in a given case is governed by the environing con- 

 ditions. It is common to classify nations as borrowing and lending 

 nations, but we must now realise that this distinction represents 

 a governing condition. The capital borrowed must be presumed 

 to be for a vital Interest; and all courses of conduct which would 

 entail, or even render likely, Tts return become impolitic and im- 

 possible. Further payment of interest, as between country and 

 country, can only be made by goods, and that means that a portion 

 of the trade of a borrowing country is a tied trade in respect of 

 which it has no freedom of will or judgment. 



National Bankruptcy. 

 When in the second year of the war prices began to move much 

 controversy arose as to the cause. Hitherto it had always been 

 reasonable to suppose that when a general rise of prices took place 

 this was caused by inflation of the currency. The principle of 

 economy of hypothesis led to the preference of a single cause — 

 like the manipulation or inflation of the currency — to the con- 

 gruence or coincidence of many causes required to account for 

 parallel movements of apparently unrelated products. There 



were, however, characteristics of the recent movement of prices 

 which took it out of this category. The upward tendency of prices 

 was obstinate and refractory to all expedients of treatment, and it 

 was world-wide — in no sense confined to or even chiefly character- 

 istic of the belligerent countries. Gradually it became recognised 

 that some other than a purely currency influence was at work. The 

 destruction of wealth caused by the war emerged as the only dis- 

 turbing influence of sufficient force and extent to account for the 

 phenomenon. The controversies on this point may be, I consider, 

 regarded as closed by the speech of the Hon. B. H. Brand, C.M.G., 

 as President of the Brussels Conference. This conception was 

 indeed the basis of the weighty and important recommendations 

 drafted by that Conference — since often more honoured in the 

 breach than in the observance — against budgeting for a deficit and 

 meeting deficits by loans. In view of their extreme importance to 

 the theory of the economic basis of civilisation I give an abstract 

 of their findings. The Conference found that the root cause of all 

 the world's financial troubles was the destruction of capital caused 

 by the war. This effect takes many forms : — 



(1) The destruction of towns and villages in the areas 



devastated by war. 



(2) The deterioration of railway systems, roads, and 

 houses. 



(3) The enforced sale of foreign securities to countries 



outside Europe. 



(4) The huge external debts of the belligerent countries. 



(5) The loss of working capital in the form of stocks of 

 raw materials. 



