Evening star., 1932-12-02

tress which this involves. The coun-
tries of the world cannot even begin to
consider how to restore this mechanism
until the causes which undermined con-
f1dence have been removed. One of the
most important of these is the system
of intergovernmental debts.
Differ From Commercial Loans.
Z. These intergovernmental debts are
radically different from commercial
loans raised by foreign governments on
the market for productive purposes
Such commercial loans are normally
self-iQuidating. The market loans thus
raised during the last hundred years
have converted whole territories from
deSolate swampS or uninhabited plains
to flourishing provinces teeming with
human life and producing great addi-
tions to the wealth of the world. Such
productive leans directly afford means
whereby the borrower can repay them
with interest and at the same time be-
come more prosperous. But reparations
and war loans represent expenditure on
destruction Fertile fields we're rem
dered barren and populous cities shat
tered ruin. Such expenditure. instead
of producing slow and steady accu-
mutation of wealth. destroys in a few
hours stored-up riches OF the past,
Like the shells on which they were
largely spent, these loans were blown
to pieces. They have produced nothing
to repay them, and they have left be-
hind nothing but fresh complications
and perplexities.
s. Repayment Of these war debts
nccesSitates unnatural transfers which
.sAl-p fIA - In w
SO far as they have been paid in the
past. their payment was made possible,
directly or indirectly, by further foreign
lending on the part of creditor coun-
tries. which temporarily conceal but
eventually aggravate the difficulties. In
the long run international debts can
only be paid in the form of goods or
services. But, GS the Bale report Of Au-
gust, 10, 1881, truly pointed out: In re-
cent years the world has been endeavor-
ing to pursue two contradictory policies
in permitting the development of an in
ternational financial system which in
wolves the annual payment of large sums
by debtor to creditor countries while at
the same time putting obstacles in the
way of the free movement of goods. So
long as these obstacles remain, such
movements Of capital must necessarily
throw the worlds financial balance out
Of equilibrium"
Gold Reserves Drained.
9. The creditors, in so far as they
have refused acceptance of payment in
goods, have compelled their debtors to
pay in gold. This has, led to drain on
the gold reserves of many countries,
and this in turn has forced up the price
of gold in terms of commodities or,
in ether worGs, has forced down the
price Of commodities in terms of gold
currencies. This fall in prices has
caused widespread ruin to producers in
debtor and creditor countries alike, and
threatens disastrous social and political
repercussions. 1t has seriously increased
the burden Of commercial debts, but it
has rendered intolerable the pecuniary
burden of unproductive war debts.
TO- The difficulties of maintaining
payments fixed under existing agree
ments first became acute in the case of
Germany, and. despite the moratorium
adopted as the result of Mr.. Hoover's
initiative last year, apprehensions Gre
ated by the situation in that country
caused large Withdrawals of credits,
which in turn involved London as a
leading international center. Conse-
quent movements of capital forced the
United Kingdom to abandon the gold
standard, and while sterling has re-
manned more stable in terms OF goods
than gold Scurrencies, the events of Sep
tember, 1881, gave a profound shock to
confidence in the monetary system
throughout the world. Thus the bane-
full effects of these unnatural transfers
in respect of reparations and war debts
have gravely accentuated the difficulties
of all five continents, including many
countries which were neither debtors
nor creditors in "the tragic bookkeep-
ing" which resulted from the war. Con-
hdence and credit cannot revive until
an end has been put to these attempts
to force the stream Of capital to flow
uphill.
Cites Mellon Report.
IL. In this connection it Is pertinent
to recall the statement made by the
Secretary of the United States Treasury
in his annual report for 1924-25 that
the principle of capacity to pay does
not require the foreign debtor to pay to
the full extent of its present or future
capacity. The debtor government must,
he continued, "be permitted to preserve
and improve its economic position, to
bring its budget into balance, and to
place its finances and currency on a
sound basis, and to maintain, and, il
possible, to improve the standard of
living of its citizens. No settlement
which is oppressive and retards the re-
covery and development of the foreign
debtor is to the best interests of the
United States or of Europe" The re-
sumption of war debt payments in pres
ent circumstances appears altogether
inconsistent with the principles here
laid down.
Experience has, in fact, shown that
when dealing with international trans
fers of the character and of the I'M
precedented magnitude of the postwar
intergovernmental obligations, the prin-
ciple of capacity to pay" of the debtor
even If thus applied-can only be
regarded as Of secondary importance
compared with an even wider principle,
viz: that CT the capacity of the world
to endure the economic and financial
consequences which those transfers
would involve.
IL. 1t is in the light of these wider
economic and financial consequences
that successive British governments
have framed their well known policy on
ID W III d
later passage of this note. His majesty's
government are aware that any re-
mission Of the war debts may be
criticized as transferring liability from
the taxpayer in the borrowing coun-
try TO the taxpayer in the lending
country, and In this respect tax
payers in the United Kingdom and
in the United States are in much the
same position Both are already bear
ing large share of the burden of the
war debts, and would continue to bear
1t even If all existing war debt arrange
mentS between the governments could
be maintained. For example, in the
case of the United Kingdom the effect
OF its reparation and war debt arrange
mentS was to provide the sum suffi-
cient to cover current payments to the
United States Government. But this
does not mean that the British tax
payer was relieved from his burdens in
respect Of the advances made to the
allies during the war. On the contrary,