The news scimitar. (Memphis, Tenn.) 1907-1926, 1920-01-22
foreign
EXCHANGE PLAN
OF FINANCIER
Paul Warburg Urges EStab-
IiShment by Nations Of
Honestly Balanced Budgets
as Means Of Sterilization.

40 WcdliS W olouillLollVils
WASHINGTON. Jan. Establish
ment by the nations Of the world Of
honestly balanced budgets Is the first
step toward sterilization OF foreign ex-
changes and the restoration OF normal
financial conditions, Paul NJ Warburg,
Of New York, former member OF the
federal reserve board, today told the
Second Pan American conference.
"A country's ability, without add
tional borrowing, TO balance its regular
budget, is the test of its solvency,
Mr.. Warburg said. 1.-THE character of
this test at this juncture will decide
the measure of its future credit and
upon that, in turn, will largely depend
It's power to rehabiitate 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 determine
the extent to which they could reclaim
the shrinkage Of their currency stand
ards.
But whatever the level they may be
able to recover" he continued, "ulti-
mately 1t win be to their vital interest
once more to fasten 1t to a definite gold
relation and to re-establish a stable
exchange. fluctuatlng between the
maxima and minima Of gold PARTIES.
without which a country's trade and
growth will remain subject to a fatal
handicap.
The more perfect the machinery of
credit, however the more insignificant
becomes the necessity of settling In
actual gold
I'VE are living in an era where the
production of money and credit has in
creased and the production of goods
has hapraoead In 10 xtfa
must produce less credit and money
and produce more goods"
Consumption taxes, that is, taxes
levied on spending and not on saving
were advocated by Mr.. Warburg, who
declared that Extravaganza must not
only. be curbed on top, but just as
much on the part of the masses re-
ceiying 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,
insofar as in rising market the
equivalent of extreme income and profit
taxes is being added to the price the
public pays for things, and insofar as
1t cripples the investment power Of a
country and thereby retards its fur
Their development"
1t is the duty Of the United States,
he said, either through private initla-
tive, or, If need be, through direct gov
ernnient action, to relieve those coun-
tries where, reconstruction beyond the
grasp OF people or where 1t Is fac
Ing starvation or economic annlhila-
tton." He predicted that the three
Americas would be drawn together In
commercial and financial union OF
growing strength and intimacy" as a
result of the fact that capital in the
old world will find so vast field in
work Of reconstruction and colonization
In darkest Europe that it will not be
able to devote itself as literally to the
development of the countries of this
hemisphere as 1t did in the past"
Mr.. Warburg summarized his views
as follows:
"The debacle of foreign exchanges
is the logical consequence of the finan-
cial 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 va
riouS degrees of depreciation of money
and credit, and between dssimilar
grades of productivity in different
countries.
when the equalizing power Of gold.
interest rates. and government credit
has spent itself, the discount Of for
eign exchanges acts as the only re-
naming means of adjustment.
Foreign exchanges Of the countries
atfected cannot be stabilized until their
lmportations and expectations more
nearly balance one another and until
The process OF dilution of currency and
government credit is uniformly reduced.
or arrested.
"Rigidly balanced budgets are there
rore, required, because they restore the
Pubic credit; because they arrest fur
Their initiation; because they lead to
curtailment of expenditures and in
creased taxation, which, If properly de-
Wsed, makes for decreased consump-
ton, increased production and lower
prices. And these in turn are essen
tlal in that they stimulate expectations
and discourage unessential importa
tons. and thereby bring about the pos
sloility Of more nearly balancing the
two.t
For years to come the rehabilita.
ton OF currency standards and foreign
exchange levels of borrowing countries
VIII depend primarily upon the fiscal
policy of their governments: it will be
the character of their budget Oncluding,
as 1t does, the question of labor and
increased production) that, more than
anything else, will decide their future
economic worth and development.
II we agreed on these premises n
Is obvious why II would be foolish Ia
mink that In times like the present
foreign exchanges could or should have
been permanently begged "
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