Evening star., 1935-05-19
Z. s. YIELDS AS CREDITOR
TO GAIN GOLD SUPPLY
Process of Becoming Debtor Nation
Holds Out Hopes to Farmers of
Recovering Market.
BY FRANK ii. SIMONDS.


" proach of another due date
"A for war debts forecasts an
4 \ other default by all the debtor
countries save Finland, the
whole subject of war debts and for
eign trade has been called to public
attention by the recent report of
George N. Peek, special adviser to the
President on foreign trade. Like Sec
retary Hull and Secretary Wallace,
Mr.. Peek is worried about the ques-
tion of foreign trade; but like them,
he has his own line of approach.
What troubles Mr.. Peek is that as
result of our gold purchases we are
losing our position as a creditor Ma
ton. He sees that the, debts-that is,
the war debts-have become an asset
of dubious value. He sees that other
countries are getting rid of their pri-
vate debts to us by paying back on the
securities their citizens purchased.
He sees that at the same time foreign
investors are acquiring American Sc
curities. From all this he concludes,
quite reasonably, that at no distant
time we shall have no foreign holdings
save the doubtful war debts and that
foreign investors may have substan-
tial amount of holdings in our securi-
ties.
What Mr.. Peek does not tell his fell
low countrymen is that under the cir
cumStnces this is precisely what was
always bound to happen once the
United Safes refused to play the game
as a creditor country. And that re-
fusal dates back to the early postwar
years and found final expression in
the Hawley-Smoot tariff law later re-
inforced by the johnson foreign loan
law. Taken together, these two en-
actments made inevitable the return
of the United States to the situation it
occupied in 1914, that of debtor coun-
try.
Britain Played the Game.
Great Britain, which has played the
role of creditor country for nearly
quarters of century, began her
game by repeating the corn laws and
destroying her own agriculture. There
after she could take payment for her
manufactures in the foodstuffS and
raw materials which were not raised
or mined at home. When she found
she could not absorb as large a guam
tity of raw materials and foodstuffs as
her customers could take of her manu-
factures, she lent them the difference.
Always, however, the British ran
their domestic economy in such
fashion as to be able to collect their
foreign investments. Even when in
1881 they went off free trade they
made special arrangements with their
debtors-and with the Dominions and
Argentina in particular-giving them
preference for their foodstuffs and raw
materials in the British market and
thus continuing to collect their debts
by accepting payments in kind. That
Is why the British have lost so much
smaller proportions of their foreign
investments than have we.
When the war suddenly transformed
us into a creditor country, we refused
to make over our domestic economy to
enable us to collect our foreign debts
Actually the thing was impossible. We
could not do in 1919 what the British
had done 10 years before and throw
our agriculture overheard, for that
would have ruined one-third of our
people. Nor could we have scrapped
our industry, for that would have
wrecked an even larger part Of our
population. How, then, were we to
collect our debts, the $4,000 900, 900
of war debts and the $1,000 900 600 of
private investments abroad? How also
were we to continue to sell more
abroad than we bought?
There were two ways-we could ac-
cept payment in gold or we could lend
our debtors and customers the differ
ence between what they paid in inter-
est and for imports and the sums we
paid them for their exports to us.
But in the first postwar years the
gold was not available to the debtors,
who we're employing it as the founda-
ton of their domestic currencies.
There remained, therefore, only loans
and, as a result, between 1920 and
1880 we lent abroad something like |
$1,000, 100000, which came back to |
us as payment upon war debts, private
debts and our exports surpluses.
Lending Stopped in 1880.
After 1880 foreign lending stopped
Then presently the war debts were de-
faulted. Nevertheless, payments on
our private investments, although re-
duced third, continued and we also
still sold more abroad than we bought.
How was the difference adjusted? BY
gold payments: Foreign countries,
apart from the gold bloc, now having
abandoned the gold standard, began
to release their gold to us. Thus, last
year we took in upward of $3.50 ,000,-
900 in gold, which represented the
excess of our interest collections and
our exports over our imports. In ad-
dition, another $500,000,00O in gold
came in partly as a result of the re-
purchase of American securities by
Americans who had sent their money
abroad during panic times, partly from |
foreign purchases of American Sc
curities.
Mr.. Peek recognizes that now, with |
the war debts dead, and as a result |
Of our devaluing the dollar-although |
he tactfully ignores that detail-for- |
eigners will be able in no long time to |
liquidate their debts to us and that |
will wipe out our creditor position. |
Meantime, he sees foreigners also using |
their gold to buy our securities as well |
as to bridge the difference between |
their sales to us and our purchases to |
them. One day, then, if the process
continues, we shall have no foreign
holdings and we shall, moreover, be
paying interest upon alien investments
in our securities.
All of this is possible and even
probable, but what Mr.. Peek does not
say is that it is the only way in which
the traditional American economy can
be made to function. For if, on bal
ance, Europe presently holds $10,000,-
100000 of our securities and thus can
collect $500,000,000 annually in in
terest, then it will have to collect that
sum by taking that amount of our ex-
ports in excess of what we import
from it. Then we shall be back in the
same situation we occupied before the
World War, when we sold more abroad
than we bought and, being debtor
country, did not have to worry, be-
cause to receive payment our creditors
had to take our exports.