BARS TO RECOVERY

Rotorua Morning Post, Volume 2, Issue 568, 27 June 1933, Page 7

BARS TO RECOVERY

ECONOMIST'S LIST TASK WHICH WILL CONFRONT WORLD ECONOMIC CONFERENCE. IMPORTANCE OF DEBTS. A graphic description of the task which the World Economie Conferenee will have to face has been prepared by Mr. H. 0. Chalkley, British economist and commercial eounseller of the British Embassy at Washington. Mr. Chalkley has heen engaged for some time in the preparation of data -for the use of Sir RonaJd Lindsay, the British Ambassador, in his preliminary economie discussions with Secretary Hull, and has attended some of these meetings, says the New York Times. Of the seventeen points on Mr. Chalkley's "vicious circle of economicfinancial influences," all of which must be eliminated, in his opinion, before world economie recovery can be achieved, he has so far only heen ahle 'to strike off one item as provisionally disposed of. This is reparations, which is considered out of the way as a result of the Lausanne Agreement. His graph is -drawn in .the form of a circle — "I only drew it for my own edification," he explained — to show that it has no beginning and no end. As long as the circle remainsl intact it will furnish snpport for the "social political consequences" of unemployment and rtaxation, leading ultimately to fall of Governments, social disorders, revolutions, and international animosities, in the economist's opdnion. The task of the Economie Conferenee will he to hreak the unity of the circle at 'almost any point, he thinks. Once broken, it will fail to give the necessary snpport to the unpleasant consequences, and the world will he on •the up grade. A Complete Circle. Although the eircle has no beginning iand no end, the item "fall in prices" occurs at the top, and its dark .shadow of "loss of confidenee" in all forms of business enterprises 'appears at the bottom. The norrnal evolution of a world economie crisis usually sees that phase first, in point of chronology. In a determined effort to ig.uard the "home market," countries where the iprotectionists have p'olitical control hasten to put up .tariff barriers in a usually va.in effort to stem the downward trend of price levels. As prices fall further, it is found that tariffs cannot he jacked up with sufficient rapidity to stop the inflow of foreign goods, and import restrietions or quotas are brought into play. It has often beeri( alleged that countries made use of stringent sanitary regulations to impose embargoes, or import restrictions, under another name. As tariff walls rise in every country, individual exporters find themselves unahle to sell their goods abroad. Inmany casesi this situation has led to Covernment export subsidies, enabling the exporters to hurdle foreign tariff barriers at the expense of their own taxpayers. Consumption restriction, brought about by any of the means at the Government's hand, is an effort to redress an unfavourahle trade balanee in the manner in whieh a private individual would straighten out his own budget. By keeping the nation from buying 'anything, and by selling as niuch abroad as export subsidies will permit, Government heads hope to avoid a red-ink balanee, eventually tO' he sefctled hy gold transfer. Production restriction, on the other hand, is an effort to lift domestic price levels, and has heen tried extensively, even to the extent of forming worldwide agreements to this end, but is defeated hy Nature and suhstitution, and the unsaleahle glut con tinues to weigh on the restricted markets of the world. Dumping Follows. The last desperate step in attempting to dispose of surplus products abroad is generally called dumping. This means that the products are sold in foreign countries at any price they will fetch by underselling native producers. :Russia was wildly accused of this policy in its vigorous effort to acquire foreign credits for the purchase abroad of machinery and the services of experts. Mr. Calkley's circle now. begins to concern itself with the financial side of this same dark pieture. The war debts resolved themselves into an apparently insolubile problem, regardless of the original merits of the various settlements, when the debtor nations found that the only large- creditor nation would not aceept payment in goods. Had there been on trade barriers 'in the rest of the world, it is P'ossible that they might have paid off these dehts with the profits resulting from goods or services sold to third parties. With these unsettled obligations resting on the ledgers of the various States, loss of confidenee in the future of all sorts of business transactions, particularly those of an international character, pushed its way into the ensemble. Closely allied with the war debts, and governed largely hy the same considerations, was the question of Reparations, until the Powers concerned, gathered at Lausanne, agreed to write .them off, the only segment of the circle to be crossed out. The transfer problem became more and more acute as unfavourahle balances piled up throughout the world, the black ink appearing only on the trade accounts of the United States. These halances were .settled in gold for a certain length of time, until the United States garnered a far greater stock of gold into its vaults than even our own hankers and financial experts wanted. Defaults Begin.. When the gold settlements were ended, either through artificia'l restriction of gold movements by foreign Governments or through' the natural exhaustion of gold stocks, international ■defaults started and currencies depreciated in terms of gold. These defaults proved to be a bad example for commercial debtors, who began to

itreat their own creditors in the same way. Exchange control is only a Iogical vernmental deficits due to mounting expense and diminishing revenue from losses of Customs duties as well as turnover and profits taxes on foreign goods formerly sold within"the borders, attacked Government credit, and made exchange control even more imperative to avoid a flight of capital from the country. The net result of all these developments was, of course, a stoppage of credit and loans, completing the cycle back to fall in prices and ready to start around the circle again. Wdthout credit and loans, in other words, without normal business opportunity for their disposa.1, commodities would suffer further losses in price. The most striking portion of Mr. Chalkley's diagram is the ominous ultimate result of the political upheavals which' follow the twin evils of unemployment and taxation, "warf are." The threat of a resort to arms, in his opinion, isundoubtedly kept alive hy the .support furnished by the contnuance of the vieious circle.