The Pensacola journal. (Pensacola, Fla.) 1898-1985, 1920-01-23
HONEST CREDIT
SYSTEM NEEDED
Warburg Declares an Honestly
Balanced Budget Will Solve
Exchange Problem.


ment bv the nations of the world OF
honestly balanced budgets is, the first
! step toward stabilization of foreign
exchanges and the restoration of nor
NAL financial conditions, Paul Nj. War
burg of New York, former member
! of the federal reserve board. today
/ told the second pam American confer
ence.
"A country's ability, without addi-
tionaI borrowing, to balance its regu-
lar budget, is the test of its solvency,
Mr.. Warburg said. The character of
this test at this juncture will decide
the measure of it's future credit; and
upon that, in turn, will largely depend
| its power to rehabilitate its commerce
and trade and its foreign exchanges"
A number of countries will never
again regain their previous exchange
levels, Mr.. Warburg predicted. The
ability of those countries to produce
and to save, he added. would deter
mine the extent to which they could
reclaim the shrinkage of their curren-
| cy standards.
But whatever the level they may
be able to recover, he continued "ul-
timately it will he to their vital in
terest once more to fasten it to a defi-
stable exchange, fluctuating between
the maxima and minimaNpf gold parti-
ties, without which a countrys trade
and growth will remain subject to a
fatal handicap.
THE more perfect the machinery of
credit, however, the more insignifi-
cant the necessity of settling in actual
gold.
production of money and credit has
increased and the production of goods
has decreased. In order to emerge we
must produce less credit and money
and produce more goods
Consumption taxes, that is taxes
levied on spending and not on saving.
We're advocated by-AIr. Warburg, who
declared that "extravagance must not
only be curbed on top, but just as
much on the part of the masses re-
ceiving the bulk of the national in
come and, in the aggregate, doing the
largest share of the country's spend
ing"
Our present form of taxation has
proved a failure, Mr.. Warburg said.
in so far as in a rising market the
equivalent of extreme income and
profit taxes is being added to the
price the public pays for things, and
in so far it crippIes the investment
power of country and thereby re-
tards its further developments"
1t is the duty of the United States.
he said, either through private initi-
atlve, or If need be, through direct
government action, to relieve those
countries where reconstruction is be-
yond the grasp of a, people or. where
<
utilization" He predicted that the
three Americans would "be drawn To-
gether in commercial and financial
union of growing strength and iilti-
macy" as a result of the fact that
capital in the old world will find so
vast field in work of reconstruction
ana colonization in darkest Europe'
that 1t will not be able to devote it.
self as literally to the DEVELOPMENT of
the countries of this hemisphere as it
did in the past"
Mr.. Warburg summarized his views
as follows:
The debacle of foreign exchanges is
the logical consequence of the ,finan-
cIaI anarchy prevailing since king
gold was deposed.
The discount of the foreign ex
changes of borrowing countries is not
the disease, but the symptom. 1t ex-
presses the differential between yari-
Gus degrees of depreciation of money
ana cfedlt, and between dissimiIar
oI productivity, in different countries.
When the equalizing power of
gold, interest rates, and government
credit has spent itself. the discount of
foreign exchanges acts as the only re-
manning means of adjustment.
Foreign exchanges of the co,,r+,.i,,-
aIIected a. cannot be stabilized until
their importations and exportations
more nearly balance one another ana
untll the process of diIution of CIR
rehcy and government credit il mi
IornIy reduced, or arrested.
Rlgldly balanced budgets are tba,.a
Iore' required, because thev resto-a
me puohc credit; because they arrest
Iur rther initiation; because they lead to
urtaliment of expenditures and in
creased taxation, which. if nronarI,,
ueVlsed, makes for decreased CON
sum nption, increased production and
io"er prices. And these in turn ara
essential in that, they stimulate ~
portations and discourage ,Inessa,tta,
lHlportations, and thereby brine 49,.
the possibility of more nearly baIs,,o
ing the two
For years 10 come the rehabili+a-
ton OF currency standards and fo~aier,,
exchange levels of borrowing 60
trles will depend primarily ,non a.
Iscai policy of their governments :
WllI be the character of their b,,,i.a-
Nlncfuding, as it does. the questions of
labor and increased productionl. that
more than anything else, viii decide
their future economic worth ard de-