New-York tribune., 1922-11-19

ceilation OF these debts followed by
heavy loans 70 Europe for reha-
bilisation purposes could result in
heavy exports Of gold, but either con-
singency 10 80 remote as to deserve
little weight in the near general fore
cast.
On the assumption that these con-
clusions are sound, and that we are.
now entering an era OF prices at the
present level or higher, the general es-
| feet on business and on the various
classes of securities is reasonably
! obvious.
1t matters little to business whether
prices are high or lew, once wages
and other production costs have been
adjusted TO the new level. 1t is not
contended that this adjustment has
been fully nade--it never Is, exactly
| but there has been substantial prog
ress in that direction. Wages, on the
whole, have been reduced from the in
flated wartime levels, but they ara
still substantially higher than the
scales of 1913, thus conforming in
general way to the new and higher
level OF commodity prices. This fact
should tend to minimize the inevitable
demands of labor In the next business
revival. Such demands are normal to
periods OF business activity and rising
prices, and whatever ctn be antici-
pated can be satisfactorily dealt with.
Other things being equal, therefore, q
higher general level Of commodity
prices, OF itself, should not prevent
normal revival of business.
According to the theory outlined,
commodity prices at this writing are
at point somewhere below che aver
age level TO be established in the next
business cycle. Advances Of prices
h>r
increased utilization Of the larger cir
culating media. That would mean in
creased bidding for goods or, in other
words, an increase Of business activity
In Europe the return Of the princi-
pal nations to the pursuits of peace
has naturally resulted In increased
production of the things necessary to
subsistence--food and clothing---al-
though this production is still far
short of normal But the huge poten-
tial demand for what may be termed
permanent goods, such as materials for
reconstruction, new building and rail
way and power equipment, will re-
main unsatisfied for a long period
for lack of the means of satisfaction--
that Is, lack Of the means by which
production may be increased. Euro
pean industry is~tiisosganized, the nor
NAL flow OF goods between nations
has been interrupted BIZ conditions
arising out Of the war, and financial
resources have been reduced to the
minimum. The return to normalcy.
therefore, will be long drawn out
and laborious process.
With the United States 1t is differ
ent Deaation from wartime price
levels has been effected without seri-
Gus impairment of its industrial struc
ture and huge potential demand for
permanent goods exists, with steadily
increasing means Of satisfying it.. BY
means Of satisfaction is meant huge
natural resources, highly organized
industrial system and plentiful sup
ply of money, or credits, TO set the
wheels of production revolving at q
faster rate.
Our geographical isolation from Eu-
rope, together with q policy OF high
tariffs, has fostered the development
of internal trade at. the expense OF
trade with other nations. The ratio
of our exports to OUT. total output OF
goods averages only about 6 per cent,
and this international trade is largely
with countries Of the Western Hemi-
sphere and Asia. Our exports to
Europe average only 2 or per cent
not the most desirable foreign econo-
mic position. We would be better off
with much rather than little export
trade, nor can it soundly be argued
from any standpoint that Europe's
nisfortunes are our gain. We need
European goods rather than European
gold, and thereby hangs this tale of
higher prices; but this position espe-
cially at this particular time, means
an economic independence such as no
ether nation enjoys. We can have
hJa AZ vii an
spite of Europe's hscal and economic
weakness.
| 1t is not within the scope of this
article to predict what degree of pros
perity we will enjoy, but to point out
! the normal bearing of new and higher
| level OF commodity prices on business
| IN general and the various classes of
securities in particular.
| 1t is obvious that if commodity prices
| stabilize at, say, 30 per cent higher than
| the pre- war level, then in order TO be as
| we'll off as he was in 1913, the individ-
ual must have SO per cent more income.
| The income of such individuals as are
| dependent on bond or other fixed in
! terest bearing investments bought in
| the pre,war period will therefore pur-
! chase less goods, and should the princi-
nal OF any of these investments fall
due and be paid of then the investor
would lose, in purchasing power, %
per cent Of his principal. But there
| is no reason why the average price Of
bonds number Of dolars--should
be lower than it was in the pre-war
period, provided the general interest
rate--that is, the rate Of interest typi-
fed by time loans snd commercial paper
be as low as it was in 1918. Bond
prices, in thesleng run, will conform
to the general rate of interest, ir-
respective Of the purchasing power OF
the dollar, because prices are made by
present investment, in dollars OF pres
ent value. The dollar invested, there
fore. is as cheap as the dollar received
as income. This idea needs elaboration
in view Of a popular fallAcy, arising
from disturbances Of the war period,
that permanently decreased purchas-
ing power Of the dollar will mean COM
mensurateIy lower bond prices:
A buys 8 per cent bond In the year
1918 with dollars that buy 100 units
of goods, In 1923 he sells this bond to
3 for dollars that will buy only SO
units Of gooda. A obviously loses 90
per cent in purchasing power.
But If the general interest rate
that is, the rate charged for various
bank loans---be as low as it was in
1913, B, with his new and cheaper dol
lars, would be willing to pay A as neplg
dollars as A had originally invested. In