EFFECTS OF THE WAR ON CREDIT, CURRENCY, AND FINANCE. 321 



tion and assessment, could not have been fixed with something like the assent 

 of the debtor country. If German indemnities were reduced to a level at which 

 they were generally recognised as within her capacity to pay, her bonds might 

 be saleable abroad and capital miglit be available for, e.g., France and Germany 

 to balance their Budgets and remove many of the hindrances to industrial 

 recovery. 



Note. — Sir Drummoud Frascr adds : ' Tlie Governments which are entitled to 

 hold German Reparation bonds should, if required, issue their own bonds secured 

 by the German bonds, and should use the proceeds for the reconstruction of 

 the devastated areas, and/or in repayment of advances already made. I am 

 sure that such bonds issued, for example, by the French Government would be 

 acceptable to Americans and to nationals of other lending countries. This 

 would enable France to balance her Budget by foreign instead of internal 

 borrowing. The foreign borrowing would be for productive purposes. The 

 cost of this borrowing should be spread over a number of years. The annual 

 interest and repayment would be more than covered by the interest and sinking 

 fund from Germany, secured by pledged assets and the requisite control. The 

 extent to which exporting countries could participate would depend upon their 

 ability to supply goods and services and not solely upon their ability to absorb 

 foreign securities out of surplus savings.' 



Much complaint has been heard of price-cutting and competition through 

 German imports to this country in payment of reparation claims. Mr. G. Bernard 

 Shaw writes : ' The plunder of the Overmans is a mistake from every point of 

 view. The only possible effect on the victors is to pauperise them. The 

 Germans cannot pay in gold; and in whatever other commodity they pay the 

 trade in that commodity will be destroyed in the country of the plunderers. 

 Already our shipbuilding and mining industries have been devastated in this 

 way; and when all the discharged shipwrights and miners have found parasitic 

 employment in hotels, garages, kitchens, and barracks, the country will have 

 become economically dependent on Germany, who will soon be strong enough 

 to withdraw her support and leave us without either industries or characters.' 



It is not certain, however, that the competitive power of Germany as an 

 exporting country would be lessened if her liabilities on account of reparations 

 and indemnities were cancelled or reduced. A tradesman or merchant some- 

 times sells his stock cheap because he is pressed by creditors, and must give 

 them cash; but in the long run the trader with ample capital and good credit 

 can offer the best value to his customers. The stimulus to exports given by a 

 depreciating mark is not a healthy or lasting one, because it is gained at the 

 expense of some portion of the community which cannot be permanently 

 maintained, t.g. at the present time, the expense of the wage-earner who is 

 reduced below an economic level of reward. 



Question 2. — What steps should be taken, during the next few years, to 

 deal with the National Debt? Is it imperative that redemption of the Debt 

 should proceed continuously, and upon a large scale? Or should it be effected 

 out of possible surpluses at the end of the financial year? 



The apparent ease in the financial situation is largely illusory. It has been 

 temporarily relieved by the resources liberated from industry by the excep- 

 tionally severe depression Therefore this temporary ease is quite abnorjnal. 

 The main points of difficulty are (1) the floating debt, (2) the foreign debt, 

 (3) the method of funding. The evils of the first are well known, and the 

 disadvantages of the second are obvious ; therefore it is sound policy to 

 endeavour to reduce both as fast as possible. The cause of temporary ease of 

 money makes it advisable for those controlling such capital to keep it liquid ; 

 therefore much of the money in Treasury l)ills is not available for funding 

 operations. Accordnigly, the funds required to reduce the floating and foreign 

 debts must come either from new savings or from the Budget. In the relatively 

 short period under consideration both methods must be used, and the policy 

 of debt reduction through the Budget must always be kept in view. In the 

 present time of depression, and in view of the moderate progress already made, 

 it seems necessary to restrict this year's contribution to the Budget surplus, 

 almost certainly a dubious result whioii may mean negative debt redemption. 

 At the sam€ time, iiad there been adequate economy in Government expenditure 

 there would have heen a surnlus for :t respectable reduction of debt this vear. 



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