The Bridgeport times and evening farmer., 1920-01-24
WARBURC POINTS
 OUT REMEDY
 FOR EXCHANGES
Governments Must Cease Making Further Issues of Securities and Money to Cover Current Deficien- cies.

WaShlng lngtOn-Speak1ng before the Second Pan-American Financial Con- ference, Paul M. Warburg, former Deputy Governor of the Federal Re- serve Board, discussed the fiscal and currency standards as the future measure of the credit of the nations of the world. MT. Warburg pointed the reasons for the present abnormal condition of the foreign exchanges and the fiscal policy the countries on a depreciated basis will have to adopt to restore the gold parity of their cur rencies and bring exchanges back to normal.
 He said in part:
 "A gold country repudiating it's ob- Igation to pay in gold would have been deemed a bankrupt before the war, and a country permitting the exist ance of a substantial gold premium, be it domestic or in the form of an excessive discount on it's foreign ex- changes, would have been considered as being headed for insolvency, a condition which would have caused widespread alarm.
 ''The fear not to be able to fulfill their gold obligations, the wish and will, at all hazards, 10 ward off any such catastrophe. was the strongest di- recting force and regulator, not only of the financial, but even of the eco homie policies of such countries. Ra- ther than to expose themselves to the danger of a suspension of gold pay ments, they would resort to such weapons as high discount rates, high import duties or taxes, the export premium, borrowing in foreign mar kets on even onerous terms, or to any other means of counteracting de- mandS caused by an overwhelming adverse trade balance.
 ''The war brought about a complete reversal of these doctrines and tra- ditions. The will to win. of necessity, became stronger than the desire to preserve gold standards and inasmuch as victory was dependent upon am munition, food and other supplies, goods became more important than gold, and a policy dictated by the flow of gold was quickly subordinated to policy directed by the flow of goods With a greater or smaller degree of promptness and franllness practically the whole world, in one form or an other, after having withdrawn gold from circulation, suspended gold pay ments.
 '"The danger of internal and external gold demands thus eliminated, the
 
 came unnecessary and almost all be- lligerent countries embarked upon an era of government finance based upon low interest rates born of imitation.
 This enabled the countries to pro- cure the domestic goods and services needed at a cheap price for money but at high prices for the things re- quired; people imagining that they were escaping taxation when they were paying it in it's most drastic and most memorable form, by the depreciation of money.
 ''The controlling and constraining power of gold once removed, there was no limit to imitation as long as any vestige of government credit re- mained. And on this basis there was, therefore, no limit to the domestic purchasing power of governments, and consequently, no limit in sight to the rise of prices, once it was well started by precipitate and competitive gov ernment buying.
 There was no limit on purcha sing foreign goods Gas far as they could be furnished and shipped, and as far as they could not be paid for in ser vices, goods, or securities owned) ex- cept the willingness of the foreign seller either to grant individual or government credits in his own curren- cy. or to convert his money into for eign balances or obligations tempted by the low level of exchanges which naturally followed excessive foreign buying.
 ''When foreign exchanges first be- gan to decline to some points below their normal gold parties, a shiver ran down the spine of the financial community. Bankers and business men predicted that trade would stop and that the end would come if their exchanges were permitted to estab- fish themselves at a substantial dis count. But when prices for goods had risen by 100 per cent or more and when government printing presses manufacturing a constantly increa sing supply of money and credit, were pav- ing the way for further rises, it was difficult to understand why the addi- tion to cost of few points, as in- volved in the initial fall of exchanges, should have had so far-reacY1ing an effect on trade. Subsequent events showed, indeed, that the flow of goods, at that stage, was hardly af- fected by this comparatively moderate increase in cost. The urgent demand for goods had overridden the gold traditions of the past and it overthrow with equal vigor and thorougnness the gospel of the inviola bility of the gold parties of exchanges. As a mat ter of fact, this later development was nothing but a logical sequence; for countries had, in effect, surrendered their exchange parties at the very moment when they suspended gold payments.
 The belief is entertained by some. that, as a solution of our difficulties, we are likely to abandon gold as the future means of ultimate settlement Of international balances. I do not believe the world will enjoy fairly stable standards of currency and credit until it returns to the observ ance of approximately the same prin- esples of banking and finance as pre- vailed before the war.
 That does not mean that I forsee that antebellum exchange parties will generally be re-established. In deed, I hold the view that quite a number of countries will never re- gain their previous exchange levels. Their power to reclaim all or in part the shrinkage of their standards will depend upon their ability to produce and to save, and upon the measure