fertile territory, more especially in France and in the North of Italy, has been devastated; while in France also industrial centres and mining areas, of vital importance to her industries, have been competely destroyed and will not be able to resume production for years to come. In Belgium, similarly, the national industries suffered greatly during the period of occupation. Germany on the other hand, has its industrial establishments intact, but is paralysed by lack of capital and credit, and by the disorganisation bred of defeat; while in the case of Austria these conditions have led to the complete breakdown of her economic life. Russia has passed through all the throes of civil strife and is still the victim of confusion and anarchy. Each country suffers from a different difficulty, but each contributes its share to the common deficit.
In agriculture, Russia, which before the war was the most important granary of Europe, and of whose products Europe is in such need, either has not been producing at all or has not been able to exchange with her neighbours such products as she has.
Roumania, which before the war exported annually over six million quarters of wheat, has altered her system of land tenure, and is now ceasing to produce more than suffices for the immediate needs of her own population; indeed, on the 1st December last, it was stated that only 530,000 hectares had been sown as compared with an annual average before the war of 1,000,000 hectares, though some improvement has since taken place. Other countries again such as France and Germany which were largely self-supporting are unable at the present moment, owing to the devastation of the land, the destruction of buildings and machinery, or the lack of capital and fertilisers, to produce more than a fraction of what is required for their own needs, and have been increasingly driven to compete in the world market for the limited supplies now available.
Again, in regard, to coal, production in every country has been decreased, the approximate figures of output in metric tons for 1913 and 1919 respectively being as follows:-
United Kingdom. . . . France (including
Germany* (excluding Saar and Lorraine) United States of America
292.000. 000 44,000,000
234.000. 000 22,000,000
Although detailed statistics are not available, such information as we have goes to show that the output of factories and manufacturing industries throughout the world is below the standard which prevailed before the war, and far below the demands now made upon them. The net result of under-production arising from these various causes is an acute shortage of the essential supplies on which the economic life of Europe depends.
This situation requires to be met with the same courage as was displayed on both 6ides during the war. The energy which was then thrown into the production of foodstuffs must be reVived and redoubled in order to restore the situation. It must be made a point of honour with the tillers of the soil in every country to show that peace can extract from nature more than war. Europe must take
Exclusive of lignite.
measures to provide herself more largely with the food she requires in order that she may resume her full activities, and much can be effected if the necessary preparations are made without delay.
In regard to industry generally, each Government must take steps to impress on its people that the limitation of production directly assists the upward movement of prices, and that it is by increasing production that they can best help to solve the problem. Every proposal which may assist in this direction deserves the closest attention.
Governments must co-operate in the reconstruction of the common economic life of Europe, which is vitally interrelated, by facilitating the regular interchange of their products and by avoiding arbitrary obstruction of the natural flow of European trade.
The Powers represented at the Conference reaffirm their determination to collaborate with a view to the execution of these aims.
4. Increase of Consumption.-Meanwhile, instead of restricting the standard of consumption in view of this shortage of supplies, there is a general tendency to make heavier and heavier demands for the limited quantities of goods that are available. The increase of consumption takes the form of an intensified demand for commodities of every description. The demand not only for foodstuffs, but for clothing, boots and other manufactured articles, is in most countries far in excess of the supply, while
, luxuries of every kind command a readier sale than at almost any previous period.
The general extravagance now observable throughout the world is a phenomenon which has almost invariably followed in the footstepe of every great human catastrophe. It is well known to those who have lived in a district which has suffered from earthquake, and the history of the great plagues of Europe amply illustrates it; and the results have always been economically disastrous for the populations affected. It must be one of the first aims of each government to take such measures as appear appropriate to the circumstances of its own people to bring home to every citizen the fact that for the time being, until supplies are increased, it is by diminished consumption and unselfish denial that they are best able to help themselves and the world and that extravagance increases the national difficulties and perils.
5. Credit and Currency Inflation.-The im-. mense increase in the spending power of Europe which is reflected in this extravagance has been brought about by credit and currency inflation during the war. Broadly speaking, the general level of prices may be said to be the expression of the ratio between spending power on the one hand and the volume of purchasable goods and services on the other. In order to prosecute the war, particularly in European countries, every Government found it necessary to increase the amount of currency in circulation. Unable to raise sufficient funds by taxation and by loans from real savings, they were compelled to resort to borrowing from the banks and the use of the printing press. Additional spending power was thus placed in the hands of the public at a time when the volume of purchasable goods was being reduced. For example, the note circulation has grown approximately as follows:-
In the United Kingdom from 30,000*0002. in 1913 to nearly 450,000,0002. at the end of 1919.
(About 120,000,0001. of the latter figure takes the place of gold coins in circulation in 1913) ;
In France from 230,000,00*. in 1913 to
1.500.000. 000Z. in 1919 ;
In Italy from 110,000,000*. in 1913 to 700,000,000*. in 1919 ;
In Belgium from 40,000,000*. in 1913 to
200.000. 000*. in 1920 ;
While the war debts (which are closely connected with inflation amount, in the case of the United Kingdom, to over 7,000,000,000*.
In France to 6,750,000,000*.
In Italy to 2,750,000,000*.
In Germany (apart from liabilities for reparation) to 9,500,000,000Z.
In the United States to 5,000,000,000*.
The total war debt of the world is approximately 40,000,000,000*.
Throughout Europe prices at present are with few exceptions paper prices. But gold prices have also risen, that is to say, gold has a lower purchasing power than it had before the war. This is the inevitable result of the many economies which have been effected in the use of gold for monetary purposes and, on the other hand, of the dispersal of stocks of gold previously held in Europe and their excessive accumulation in other countries. Thus, in the United States, although the gold standard remains effective, prices have advanced 120 per cent over the pre-waf level. As the purchasing power of gold is ultimately the measure of price, it must be obvious that this change is itself responsible for much of the increase in the price of commodities, when expressed in terms of the currencies of all countries.
A considerable part of the rise in prices in Europe is due to this depreciation of gold, but there is an additional depreciation due to excessive issues of paper currency. The continual expansion of paper issues with its necessary consequence of continuously depreciating exchange prevents the grant of the commercial credits required by the situation, and thus fatally hampers the resumption of international commerce.
It is essential to the recovery of Europe that the manufacture of additional paper money and Government credits should be brought to an end, and this must be effected as soon as the war expenditure has been terminated.
6. Profiteering.-Excessive profit making, commonly known as profiteering, has resulted from the scarcity of goods. Deflation and a check upon the continuous rise of prices will do much in itself to end the conditions that make profiteering possible. But it is essential, in order to obtain the co-operation of all classes in the increase of production, that each government should take such steps as are appropriate to the circumstances of its own people to assure and guarantee to the workers that the burdens that they are called upon by their efforts to remedy are not aggravated by those who would exploit the economic difficulties of Europe for their own personal ends.
7. Restriction of Government Expenditure.- Demobilization has been effected by the Powers represented at the conference at a far speedier rate than could have been anticipated, but heavy abnormal expenditure Resulting
The national currencies have in each case been converted into sterling at approximately par of exchange.
from the war still requires to be met (particularly in connection with the restoration of the devastated areas). Such charges must be regarded as part of the war burden, but in order to stop the process of inflation and to start the process of deflation, the necessary measures must be initiated by ever country to balance recurrent government expenditure with national income and to begin at the earliest possible moment the reduction of the floating debts. The best remedy of all is that debts should be reduced out of revenue, but in so far as this is not possible, floating debts should be consolidated by means of long term loans raised out of the savings of the people, and it is out of the savings of the people that any fresh capital expenditure must be provided. The governments here represented have undertaken the consideration of the measures required for this purpose.
Restriction of Private Expenditure.-But private economy is not less urgent than economy in government expenditure. It is only by means of frugal living on the part of all classes of the nation that the capital can be saved which is urgently required for the repair of war damage, and for restoring efficiency to the equipment of industry, upon which future production depends. It is of the utmost importance that it should be brought home to every citizen in each country that just as in the war their private savings made available for the government goods and services urgently needed for the prosecution of hostilities, so in the period of reconstruction, economy by individuals will reduce the cost of essential articles both for themselves and for their fellows and will set free capital for the reconstruction of their country and the restoration of the machinery of industry throughout the world.
9. Collapse of Exchanges.-Commercial intercourse, on the resumption of which the recovery of the world depends, is governed by the foreign exchanges, and most of the foreign exchanges have been to a greater or less extent disorganized during the past year. The discount of European currencies on New York approximately stands as follows:
Pound sterling 30Franc (Paris) 64Franc (Brussels) 62Lire 72Mark 96
The state of the exchanges does not reflect the true financial situation of the countries concerned, provided their industrial life can be resumed. It is in part the result of depreciation in the purchasing power of the several currencies, but in part it results from the failure of exports. Many countries are temporarily dependent on the importation of food, raw material, and other necessaries, and are not in a position to export nearly sufficient to furnish the requisite means of payment. The result has been severe competition for the very limited supply of bills of exchange which has forced down the rate of exchange beyond the point which properly represents the purchasing power of currencies in the buying and selling countries. In the degree in which rates of exchange are so forced down, the prices of imports are forced up and the prices of food and raw material increased. The ultimate cure is to raise exports to the requisite amount, and this should be impressed on the trading communities affected, but it is not im-