DEBT FALLACIES

Rotorua Morning Post, Volume 2, Issue 399, 7 December 1932, Page 7

DEBT FALLACIES

a vigorous review AMERICA CANNOT TURN HER BACK TO THE ISSUES. POSITION OF, DOMESTIC TRADE. (Published by Arrangement with the Farmers' Union, Auckland Province.) It is interesting in view of the important decisions pending in regard to the cancellation of war debts to .read a notable article which appeared in the Yale Review recently; written by Mr. Harold G. Moulton. He asks: "Where doas the enlightened selfinterest of the United States now really lie in the matter of the interAllied debts ? Uppermost in the mind of the average citizen at this time is the thought that if the Treasury does not colleet the war debts, the American taxpayer will have to shoulder increased burdens. In view of the very difficult fiscal situation confronting us, it is not surprising that there should be the strongest objection, to any remission of the debts. The attitude of the American taxpayer in this regard is, of course, identical with that of the taxpayers of Al~ lied countries who have insisted that if repai-ations are not collected from Germany they will have to bear all the losses resulting from the war. "It is undeniable that from the fiscal point of view a remission of war debts would mean that the American Treasury would have to collect larger sums from the American taxpayers than would otherwise be the case — this because the Liberty Bonds are the obligation of the United States Government and must be paid whether or not we collect from Europe. At first thought, this fact appears to be decisive in indicating where our own economic interest lies. If we have to shoulder the increased burdens, it seems obvious that we would be made the poorer to that extent. Is the Question So Simple? "Is the question so simple as to warrant such an answer? ".The truth is that continuously sinoe the war the commercial policies of all creditor countries have been fundamentally in opposition to debt collection," adds Mr. Harold G. Moulton. The Government of the United States is committed to a policy of protecting our markets against competitive goods. We increased our tariff schedules in 1922 pretty much all along the line for the express purpose of meeting reviving European competition. Again, in 1930, the SmootHawley Tariff Bill carried still further the policy of keeping imports of competitive commodities to the very minimum. "Not only does American policy call for a restriction of imports in all competitive lines, but we are also desirous of expanding our exports in every possible direction. For many years the Government has sought to foster the export trade through' sei'vices furnished by the State and Commerce Departments, through the improvement of banking and credit facilities. "Our business interests have striven to expand experts in every direction by every means in their power, including the making of great price concessions on foreign -orders. Our commercial banks and our investment banks have furthered the process by liberal, not to say over-liberal, extensions of credit. The Fact That is Clear. "American shipping policy also works at cross purposes with the collection of debts. In the pre-war years American goods were largely carried by ships under foreign registry. and the transportation charges represented a considerable ineome to foreigners. During and since the war, the United States has developed a substantial merchant marin'e, subsidised by the American taxpayers. "Without entering upon any discussion as to the economic or naval desirability of developing a merchant marine, the fact is clear that we are taxing the Ameidcan people in order to subsidise merchant vessels, thereby lessening the capacity of foreign countries to meet their debt payments to the United States. American dependence upon foreign banldng and insurance services has also been decreased. . . . "How important' to the economic well-being of the United States is the maintenance of our export trade It is sometimes argued that our total export trade h'as become unimportant in comparison with our vast domestic trade and thus has no real relation to American prosperity. While an export figure in 1929 of over five billion dollars sounds impressive, this

is, after all, less than 10 per cent. of our total domestic production. Could we not readily lop off this 10 per cent., 01* at least the 5 per cent. which goes to Europe, and make it up by an expansion of our domestic markets Wholly Fallacious. "The assumption that domestic trade could be expanded simultaneously with a curtaihnent of foreign trade is wh'olly fallacious. On the contrary, a decline in foreign trade inevitably carries with it a great decline in domestic trade. The 10 per cent. figure' for our export trade is merely a general average eovering all our production and trade, a large part.of which is purely domestic in charaeter, and it serves to conceal the vital importance of the export trade in eertain important lines of production and manufacture. "Cotton, tobacco, wheat, lard, copper, p'etroleum products, automobiles, and machinery all together account for about three-fifths of all our exports. and in nearly every one of these cases th'e percentage of the product which is sold abroad is much higher than the general 10 per cent. average. In 1929, for example, we sold abroad 54.8 per cent. of our cotton; 41.2 per cent. of tobacco; 33.3 per cent. of lard, 36 per cent. of copper, 31 per cent. of lubricating oils, 23.3 per cent. of agricultural machnery, 20.8 per cent. locomotives, and 14 per cent. of passenger automobiles. The Loss of Foreign. Markets "The loss of foreign markets would, in fact, lead to a shrinkage in the; domestic market. If the cotton, tobacco, or wheat-producing aereas are seriously depressed as. a result of loss of foreign maidcets, the purchasing

power among vast seetions of our population is curtailed; and, in consequence, they cannot purchase the same quantity of goods in the domestic market that they would otherwise be able to purchase. These are the Issues. "These hre the issues which American citizens must squarely face in the coming months. Congress went on record last January against reeonsideration of the war debts. Both the Republican and the Democrti'c platforms and the Presidential candidates are 011 record against cancellation. Mr. iRoosevelt is, however, apparently disposed to rpermjt thie debts to be paid by a readjustment of th'e tariff, while President Hoover apparently hopes to use them to bargain for disarmament and trade treaties which would prove beneficial to American exports. "The basie economic implications of the war debt problem are clear. The attempt to collect obligations which resulted not from productive economic developments but from the destructive processes of the war has only served to impede the restoration of international prosperity . "Although the obliteration of the war debts would not end all the manifold difficulties under which the world is labouring in this dark hour, economic analysis leads unmistakably to the conclusion that the restoration and maintenance of world prosperity will be rendered much easier if the disoi'ganising effects of the war debt payments are eliminated once for all. This is the lesson taught by a four- . teen-year effort at debt fulfilment. The .Lausanne settlfement indicates that this lesson has at last been leamed by the reparation creditors of Germany. It still remains to be learned by the people of the United States." !