The Washington times., 1931-02-19
SEES
MOVE To BOOM
MONEY
Economist Cites Situation in
France and England As
in Need or Adjustment

III Neeu VI AuIuSlIIGII
Speaking before the CONNER
cial Club, Of Chicago, at a Dime
meeting last night, Benjamin M
Anderson, jr., economist Of tn
Chase National Bank, New York
stressed the fact that the al
normal relationship between tn
French and British money mai
kets is still UEladjusted.
Commenting further on the sut
ject, Mr.. Anderson said:
"The abnormal relationship
between the French and the
British money markets, which
first came to light in early 1917,
remains unadjusted. The British
money market is heavily in
debted to the French money
market on short account. Much
sterling was supposedly acquired
by the French people and
French banks during the period
when the franc was falling and
when they put their funds into
the form Of sterling for safety.
More of it is supposed to have
been acquired in the period
when the franc was rising and
in the period after sterilization
was attained, as SPECTATORS in
the franc borrowed sterling with
which to purchase francs and
French securities.
Bank Bought Sterling
Gas sterling was sold in Paris
to obtain francs, the Bank of
France itself was obliged to buy
sterling in vast quantities and
issue. bank notes therefor, in
order to prevent the franc from
rising above the sterilization
level. The alternative was for
the Bank Of France to issue
francs only against gold. When.
ever the Bank of France ceased
to buy sterling, however, and
especially when the Bank of
France sold sterling, gold moved
from London to Paris.
"The difficulty which the
British money market has in
defending itself in loss of gold
to France does not grow out of
fundamental financial weak
ness. BaSically, Britain has i'm.
mense financial strength. The
difficulty grows out of British
reluctance to make use OF the
old orthodox measure which
would have been employed with
hesitation in pre-war days,
namely, the raising of the bank
rate and the tightening of
credit in London. Both pOIiti-
cal opinion and business opin-
ion have been strongly opposed
to the employment of this
measure in London because of
the widespread belief, despite
years of disappointment, that
low discount rates make good
business, and because of a re-
luctance to go through with
the liquidation which firmer
money would involve. The fIex-
ible wages, prices and costs of
production of pre-war Britain
have, in large measure, given
way to a system under which
concerted effort is made to
maintain stability in these mat
terS. and an artificially easy
money market is looked upon
as a necessary part of this
policy. The maintenance of
this policy without concerted
action from outside money mar.
ketS has proved itself in.
creasingIy difficult. France,
although interpOsing no diff,
cultieS in the way of an easing
of the money market, 31aS not
seen fit to make artificial ease
by heavy buying Of securities
on the part of the Bank of
France, and there has been a
great deal of criticism of the
French money market from
British sources.
ITO an observer from q dis.
tance, it seems probable that
Britain would, in the long run,
profit by a reversal of policy,
raising her discount rates, liqui.
dating her position, and read,
juSting her system of wages,
costs, and prices, restoring her
old fleXibility in these matters,
"The main point to consider
in explaining Frances's delay in
reSuming large scale foreign
lending has been the state OF
the market for foreign bonds all
over the world, in the period
since France has readjusted her
financial position. The low
point in the franc was reached
in the summer of 1926. De factO
Standardization was attained in
the winter Of 1926-27. But the
strong backflOw of Frenc h
funds seeking repatriation con-
tinued for q longer time. 1t
was not until the middle Of 1928
that French investors and the
French money market were
really in a position to forget
their own financial problems
and to look about over the
world. By that time, the edge
was off the foreign bond mar
ket, and attention in the United
States and throughout the
whole world was concentrated
on the American stock market.
Our own takingS of foreign
bonds dropped radically in
volume, and foreign bon d S
began to drop substantially in
price. The French investor has
not been alone in his reluctance
to consider new foreign issues
II L.