- The Empire Club of Canada Addresses (Toronto, Canada), 16 Apr 1931, p. 117-131
- Paish, Sir George, Speaker
- Media Type
- Item Type
- Looking back to the events since the war; seeing that the bankers of the world have taken greater risks than ever in their history; why and how this is so. Difficulties with credit and loans. Some dollar figures to show where we are now. The speaker's judgment that they have done everything possible to maintain world prosperity and advancement. Bankers today in a position to give infinitely greater credit than before, and prepared to do so provided the necessary security. Reasons that bankers cannot take risks. Every country in the world today engaged in preventing trade, not extending it. The businessmen of the world keen for business, but the statesmen and the politicians blocking it. The need for an insistence on change. Problems with protectionist policies. Reasons for the trade depression in the world today. The time to think internationally. Suggestions for change. Dealing with the debt problem. Ways in which Germany is responsible for the situation into which we have been plunged, with economic figures. The factor of Russian competition. Some words about the Russian Five Year Plan. Asking for patience from the peoples of all nations of the world. Various upheavals throughout the world because of the economic situation. The difficulties of each country due to a world situation, not a national situation. The need for governments to come to an agreement to apply common and universal remedies. Suggestions for remedy, especially with regard to derestricting trade. Optimism for the future.
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- 16 Apr 1931
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- THE WORLD DANGER AND THE WAY OUT
AN ADDRESS BY SIR GEORGE PAISH.
FORMER EDITOR OF THE STATIST (LONDON), FINANCIAL AND ECONOMIC EXPERT ON INTERNATIONAL AFFAIRS.
16th April, 1931
PRESIDENT STAPELLS occupied the chair. He introduced SIR GEORGE PAISH, who was received with loud applause, and said: I have been coming to America and Canada ever since 1899, and I have always endeavoured to fix my visit at a time when you were coming out of your depression, so that I could tell you the coast was clear, that all is well, and that you might feel some hope. (Laughter).
I have been much disturbed, ever since the war came to an end, with the way events were moving, and I was greatly afraid that the situation in which we find ourselves today would come, and might come at any time. It was prevented by the fact that the world has not lost its nerve since the war; people were willing to continue doing things normally, and to disregard the risks they were running. They did not understand risk during the war; every risk was taken. At no time in the world's history was the courage of men proved as during that war, and afterwards we still had that courage, and people went on with their business in the normal way, believing that all would be well. If you look back to the events since the war you will see that the bankers of the world, in particular, have taken greater risks than ever in their history. When the war ended many nations were knocked out, not only physically but financially. Rumania was one of them; she needed financing, and the bankers advanced a large amount of credit to those who supplied Rumania with needed goods. What was essential was not banking finance, but investing finance. It was physically impossible for nations to repay their loans. They needed long-term credit; and while it was a good thing that some kind of credit was given them, if those who were in charge had understood the matter they would have made available investment credits, so that the capital had not to be repaid within a short time. I want to make these things clear to you, as business men, in order that you may see how our situation today came about,, and therefore, what relief measures are necessary. Throughout the war we were all financed, directly or indirectly, out of government money. Bills sold to governments were paid by means of government loans made from investors, through the assistance of the banks, and during the war there was practically no risk. But when those loans came to an end the risk increased enormously. Every person had to meet his own liabilities, and there was no great fund of money coming out through government loans. When the exchanges were unpaid in March, 1919, it was a sign that the Governments had stopped financing the business of the world.
Some of you, doubtless, think that the bankers are not very courageous at the present time. I am not a banker; I am merely an observer trying to ascertain the facts, trying to see things clearly; but I do not know what would have happened to the world, to us in Great Britain" to you in Canada, to the people in America, if the bankers had not shouldered the tasks they have, since the war. The amount of bank credit created since the war is indeed fabulous; we have all been living on bank credit without knowing it. The other day the Chairman of the Executive Committee of the Chase National Bank, in a most admirable address, pointed out that in the five years ending 1928 the American bankers created nearly £ 3,000,000,000 of credit. Just imagine the bankers of one country alone creating something like £600,000,000, of bank credit in a year. The war threw us out in our calculations; during the war we thought in thousands of millions" and we have been thinking that this condition could continue. Compare that £600,000,000 a year of new bank credits with the amount of bank credit that was created before the war, and you will at once see how fabulous the sums were. In all the years up, to 1914 the American bankers had only created total resources of £4,000,000,000, at the rate in later years of something over £ 100,000,000 a year of deposits alone. Fro-m 1914 to 1930 they increased their resources from £4,000,000; 000 to £ 14"000,000,000, in recent years at the rate of some £600,000,000 a year. This could not go on; it was physically and economically impossible. The bankers did not wish to stop granting credit, but they were justified in doing so by the condition of their customers. There has been no contraction of bank credit. The idea that the world has been brought to its present position because the bankers have called their loans is not true. The situation has arisen simply because the bankers could not go on increasing bank credit at the same rate. It meant that in 1930 there was a reduction in world buying power of something like £ 1,000,000,000, due to the absence of expansion of bank credit-no contraction, but absence of expansion. There was as much credit out in the world as before, but there was not that increase in the buying power as in the previous year; and that stoppage of bank credit is responsible for this great fall in prices from which we are all suffering.
I wanted to give you that survey in order that you might understand where we are. As far as the business men of the world are concerned, in my judgment they have done everything possible to maintain world prosperity and make for advancement. You cannot look around the world today, at Canada, Great Britain, America, or any other country-without seeing that the business men have prepared for great business; industries operate on a greater scale than ever before, capable of handling enormously increased trade. In the same way, bankers are in a position today to give infinitely greater credit than before, and are prepared to do so if you will provide them with the necessary security. (Laughter). The world is waiting for great business. (Laughter). No, no, you cannot expect bankers to give you loans if you have not the proper security. (Laughter and applause). Banks are organized for safety; bear that in mind; they are not justified in taking risks. Look at their balance sheets and you will at once see why. The margins behind the deposits in the banks of some countries-the capital and capital reserve-represent something like six percent of their total funds. That does not permit any institution to take risks. Again, the deposits are callable on demand. Let any banker make large loans that are believed to be poorly secured and it will not be long before he finds that the depositors are asking for their money. Bankers dare not take risks. They can finance good business. Give them security, and you will have all the money you need. The great difficulty now is to find that security, and to find men of sufficient enterprise and courage to take risks in a situation of this kind. That brings me to this point, that under existing conditions the world has over-borrowed. Look around the world and see. It is not that the bankers are refusing to grant credits before they should have done so; they have granted too much credit. The world of business has been conducted and carried on because the bankers are willing to grant all this credit. Why can it not continue? Why should not the bankers go on increasing their credit and the investors subscribe freely for new security? Because the policies of nations are such that debtors are finding increasing difficulty in meeting their liabilities. Every country in the world today is engaged in preventing trade, not in extending it. The businessmen of the world are keen for business but the statesmen and the politicians are blocking it.
I do not want to give you my own view only; I want to repeat to you the words uttered by Mr. Walter Leith. Chairman of the Westminster Bank in London and Chairman of the International Chamber of Commerce in Paris, just before he died; and I may say that his anxiety about this situation was so great that it led to his death; he said he wished to compliment the statesmen and politicians of Europe on the success of their policy. They had endeavoured to impede trade by every means in their power; they had increased tariffs; they had imposed embargoes; they had created licenses; they had done everything possible to interfere with the flow of trade from country to country. No one could doubt their success; but he said it had one fatal draw-back-it meant the suicide of Europe. What I want to say to you gentlemen is this; the statesmen and politicians of the world are passing measures that involve not only the suicide of Europe, but the suicide of the world. Unless you insist on a change you will be in such distress that nothing can prevent universal bankruptcy.
I do not want to make that statement without proving it. Look around the world; look at the difficulties of the debtor; look at the extreme difficulty there is today in selling goods in foreign markets-the extraordinary difficulty-and if you cannot sell your goods, how are you to pay your debts? Bear in mind there has been an immense expansion not only in national credit, but also international. The world debt has increased enormously during this time-nation to nation. Since 1914 America has loaned to the world £ 5,000,000,000--more than Great Britain had loaned to the world in all the years before the war. The world is heavily indebted to America today and as the world's difficulties increased, as the need to sell goods in America increased, the American Government made its tariff higher and higher. How can the debtor pay if a great creditor nation refuses to take payment?
Again, I want to say this to you-and I say it with great regret-we in Great Britain are faced with the prospect of protection. One of our great parties is advocating protection. They say-I want to be quite impartial-"All the world is putting protection against us; why should not we impose protection also? Why should not we make it as difficult for foreign nations to sell in the British market as they are making it difficult for Great Britain to sell in their market?" We are the other great creditor nation; we have some £4,000,000,000 of our capital abroad. We need to buy the world's produce yearly if the debtors are to pay. If there is a change of government, a government will come into power pledged to protection; we are proposing to exclude, if we can, the produce of our debtor. Under such circumstances how will it be possible to avoid universal bankruptcy? It may be necessary for Great Britain to go to war, economically, as she went to war physically in 1914, in order to bring the world to its senses. But it does not mean improvement; it means we are all in greater distress; we shall be at war--economic war--because our people say, if you point this out to them, "We realize that war hurts, but the essential thing is that we hurt our enemies more than we hurt ourselves." But what value is that to the business man who must meet liabilities? You will realize, therefore, that this present situation is extremely dangerous and difficult. If you were to ask me I would admit that the situation is quite unnecessary. There is no fundamental reason why there should be any trade depression in the world today; it is entirely due to the prejudices, the racial enmities, the preconceived notions of people all over the world who have not understood that We must become international in our outlook and in our trade; they wish the world to remain nationally-minded; they wish their nation to remain purely national.
You in Canada in particular, and we in Great Britain in particular, must acknowledge that the time has come when we must think internationally. How can Great Britain live without the world? And can the world live without Great Britain? To a Canadian audience I may say this, I think, without any fear that you will disagree--look over this modern world of ours; see what it is composed of; how has it been built up? Clearly by providing the world with inventions-railways, steamboats, and beyond that, with the credit system. Who has provided the railway and the steamboat? Who has made the modern world possible-the modern world of business and of credit? I am sure you will agree with me that there can be only one answer; the country above all others that has created the modern world, and needs the modern world, and must preserve the modern world, is Great Britain. (Hear, hear, and applause). Without wishing to blow the trumpet of my country I as an economistone who tries to see what is true-acknowledge that this modern world is the creation of Great Britain in no small degree; and I have also to acknowledge that if we are to get out of these difficulties we shall have to get out through the leadership, if not of Great Britain, of the British Empire. (Hear, hear, and applause). The question is, are we prepared to give the lead? Now, what is the lead that is necessary? What can each one of us do under these conditions? First, get rid of our prejudices; secondly, get the facts, find out what the situation really is, and bring the best judgment you can to the solution of the problems that will face you. What are these problems? First, there is the debt problem--the debt of one country to another. You have at this time ' not only the normal debt, you have the war debt, the inter-allied debt, the reparation debt. Anyone who studies the present situation as it needs to be studied must conclude that these war debts and reparation debts are greatly reducing the consuming power of Europe, and that if they were abolished at once there would be a greater demand for foods, raw material, and many other things, not only in Great Britain, France and Italy, but in Germany.
Perhaps it would interest you to know how very much Germany is responsible for this situation into which we have been plunged. Ever since the war Germany has been borrowing very heavily. In the early years after the war Germany borrowed, in a sense, by selling pieces of paper that carried no interest, and finally carried no value. (Laughter). It is calculated that she has sold some £400,000"000 worth of that paper in the markets of the world, and by reason of that sale was able to buy what she needed at that time, and to make the payments she did. Since 1924, when the Dawes plan was introduced, Dr. Sharpe maintains that Germany has borrowed abroad £ 1,000,000,000-a great sum to have borrowed in that period. That money has been lent by America in the main, and by Great Britain. In the early months of 1930 France began to lend to Germany. Unfortunately, the Hitler election came along, France was obliged to stop lending, and recalled her money. What has been the result? During the past year Germany has not been able to borrow" and her imports in one year have gone down £ 170,000,000. Let any nation's purchases drop to that extent, anal one need not go very far to find the cause of a great fall in prices. At the present moment Germany's buying power is seriously reduced by the fact that she has to pay some £87,000,000 a year for reparations. Beyond that she has to pay some £ 50,000,000 or £ 60,000,000 a year for interest on the money she has borrowed; making a total of some £ 150,000,000, that she must remit by selling German goads in the world markets in competition with other goods. Before the war she was entitled to receive from other countries some £70,000,000 a year for interest, and to receive a substantial sum for shipping and other services. The situation today is that Germany needs to sell some £250,000,000 worth of goods more than she sold before the war, in order to buy the same quantity of produce that she bought before the war-a disturbing factor of great moment. If it were possible to abolish German reparations so that there was not this extraordinary pressure on Germany to sell, it would have a wonderful effect in increasing the buying power of Europe and the selling power of your people on this side who have so much food and raw material to sell.
The Russian problem is one of great difficulty, causing us all anxiety. We wonder what should be done about it. As you know, she is offering her produce today in the world markets at lower prices than you from Canada are offering yours. Can anything be done to reduce this Russian competition? Why is Russia offering produce at those low prices? The answer comes at once, that she has bought vast quantities of goods, machinery in particular, from other nations, on the installment plan, and in order to meet her installments she must sell her products at any price. That is the only form of credit that we are willing to grant to Russia, what the business men and the manufacturer chooses to grant; and if Russia were to fall down on these payments her power to get credits would be gone. Is it desirable that we should sell our products to Russia? At the present moment almost every nation in the world is trying to avoid buying. It is extraordinarily difficult to get new orders, as your travellers in various nations find out. And here is one country that is anxious to buy, and willing to pay the prices that you ask to cover the risks. How can we refuse orders under such conditions? It is impossible. If we in Great Britain refused Russian orders-I would go farther-if Poland refused Russian orders-and in Poland they are getting far more orders than we are in Great Britain-and if those in Germany and in Austria refused Russian orders, there would be greater unemployment and consequently greater distress; and I am sure you will agree with me that the danger of Communism, the danger of revolution, increases with every increase of unemployment. The way to fight Communism, and revolution, is by making the world prosperous, not by making it more depressed. (Applause).
Now if you will allow me, I will say a word about the Five Year Plan, because there is a great deal of misconception as to the situation in Russia. I want to do so because I think it will relieve you in Canada from many anxieties. Owing to the war, and to the revolution, business in Russia broke down completely, and at the end of the war the towns of Russia found themselves with no income. The nobles, who were the land-owners, used to spend their money in the towns, but they had been killed or driven out of the country. The manufacturing power of the country was nil. There was no foreign trade, no imports and no exports, and therefore the townspeople were threatened with starvation. The government which came into power, whether it was Communistic or otherwise, had to do those things that would enable the cities to live, and under the conditions that then existed there was nothing for it but to commandeer food from the peasants. There were no means to pay them. The peasants would not sell their grain. They said, "We have had enough paper money; we want boots, clothes, steel, anything"-but there was nothing to give them. The Five Year Plan has been devised for the express purpose of enabling the towns of Russia to produce material things which they can exchange with the peasant farmers for food. That is a message of hope to Canada. At present the people of Russia are not getting enough food. Rationing is severe. As soon as they produce enough manufactured goods to exchange for the food of the peasants their consumption will show an extraordinary expansion. I am convinced that at the end of the Five Year Plan, if it is successful-and even if it is not fully successful it will mean a great increase in the manufacturing power of Russia-Russia will no longer need to press her foodstuffs on the world markets. She will have a market in her own country for her foodstuffs, and you in Canada will be relieved from the great competition to which you are now subject; this is a matter of great moment to Canada and to the world. It is of no value to any country that part of the people should be starving, and I hope nothing will be done to interfere with the success of that Five Year Plan. I am going farther still. I am opposed to Communism. I believe in individualism. I know that you cannot destroy Communism unless you destroy want. If you will give every person a decent livelihood there will be no danger of Communism. (Applause). I am convinced that if Russia becomes prosperous there will be a change of government-I hope not another revolution; I hope the government that exists today will slowly change into one that we can thoroughly trust. I should like to say-I am sure you will forgive me if I say-that I am a Liberal, an English Liberal-(laughter)-and what I should like 'to see in Russia is a Communistic government slowly changed into a Liberal government. (Renewed laughter).
I would like to ask the peoples of all nations of the world to be patient. We have just seen a revolution in Spain; last year we saw revolutions in five South American countries; there is a revolutionary movement in the Far East, in India, in Burma. Those movements, as far as I can ascertain, are fundamentally caused by this economic situation. When any country is in distress the people blame their government. That is the natural thing to do, because if the people become prosperous the governments take all the kudos. (Laughter). But I would beg the peoples to realize that at the present time the difficulties of each country are due to a world situation, not a national situation. Everyone is in the same difficulty, and it is of no use to blame any individual government.
What the situation calls for is that the governments should come to an agreement to apply common and universal remedies. If any government refuses when invited to work for such an end, then let the people of that country attach to that government the blame that it will merit. But as yet there is no concrete official proposal before the world for the statesmen to come together with a view to common action for the rectification of this situation. I would earnestly plead with the governments to lose no time in facing the situation, so that it may not get worse. I look forward to the coming winter with feelings of great anxiety, because no effective steps are being taken either to understand the problems we are facing or to apply the right remedies.
Before I sit down I should like to suggest a remedy. I have referred to the question of inter-allied debts, to reparations,, and to Russia. The other great matter is that the currents of trade throughout the world must be restored. In my judgment there is no limit to the possible trade if it is allowed to flow freely. I have watched the growth of trade over a period of nearly half a century. Again and again an expansion was stopped only by limitations. What the present situation needs is that all limitations to trade will be taken away. That means that every country would buy the things it has not the means of producing, and would sell the things it is especially fitted to produce. We have a large fund of banking and investing credit. That, in turn, means that we must have confidence, for you cannot have good credit without confidence. You must give the peoples of the world an unlimited prospect of advancing. If you will do these things, this present situation will clear up in a most extraordinary manner. Perhaps you will ask me if there is no danger. Supposing we take down our tariff, will not the goads of other countries destroy our industries? That has not been the experience of countries that have had the courage to take their tariffs down. The two countries in Europe, above all others, that have had no tariffs over a long period of time have been Great Britain and Holland, and those two countries are the wealthiest countries in Europe. If you buy freely and at low prices you will be able to reduce your costs of production; this enables you to sell freely and at low prices. You will agree with me, I am sure, that Great Britain's record is marvellous. From the end of the forties up till the war, Great Britain presented no artificial obstacles to the trade of other countries. She invited every country-manufacturing countries as well as food countries-to send their products to Great Britain. She imported freely and what was the result? Did the foreign goods destroy British industries? Not one industry was destroyed! Every industry was fostered. In that time our export trade grew from £ 50,000,000 to £ 530,000; 000; our wealth more than doubled; our income grew something like threefold; and during that period we sold to other nations nearly £4,000,000,000 worth of produce more than we bought. No other country in the world has such a record; and it is not possible to have such a record unless you have the courage to stand up and say, "We are prepared to face any country and have fair and reasonable competition." That is what Great Britain has been doing. You, her sons and daughters, will be proud of her as I am proud of her. (Loud applause)
I have only this to say in conclusion; the present situation, the immediate outlook, is exceedingly difficult. As soon as the peoples of all countries can get the right point of view, the change will be extraordinary. It will be as though we came out of the darkness of night into the noon-day of summer. I am not a pessimist; I am an optimist. (Applause). I believe the world has a great future. I believe that we can overcome the difficulties that present themselves. We must let the people know the truth, and they will act accordingly; as soon as this happens we will develop into a wonderful world. There are no physical barriers today, either to production or to distribution. The railways of the world are everywhere; shipping is sufficient and safe to a degree never before known; motor cars go everywhere, to districts that were previously cut off; aeroplanes will take you from any part of the world to any other part in a few days; distance is annihilated. That means power to produce, power to distribute, power to consume, greater than has ever before been witnessed in; the world's history.
Gentlemen, let us get this power into operation. Let us produce all that our wonderful world is capable of producing, and distribute it to that great mass of people who are today in poverty. Three-fourths of the people are still under the poverty line. Let us bring them out of it. Let them produce what they can and exchange their production for the things that other people can produce. There will be an extraordinary expansion in world prosperity. I am optimist enough to believe that within a short time poverty will be driven not only out of this or that nation, but out of the world. (Hear, Hear). Let that come. See what expansion of trade there will be. You will not have any difficulty in Canada in selling your food, your wood or your nickel; the difficulty will be to supply the demands that will come from all parts of the world for increasing quantities of food and everything else. Let us get through to that. Let us get rid of these small and foolish notions. Let us make ourselves, with the least possible delay, more and more international" more and more parts of a great family of nations. Is not that the destiny of the world? Was it not for that purpose that the Creator made this world, and put the human family here to enjoy its goods? Did He intend us to live in poverty when he gave us such wealth? Let us produce that wealth, distribute it, trade with it, make it available to all people, get rid of our present anxieties, come into the full experience of all that will lead up to this wonderful and great situation--the time when the world will enjoy peace, when the relations of nation to nation will be the relations of friendship, when poverty will be replaced by affluence, and distress with the greatest enjoyment of life. (Loud and continued applause).
THE PRESIDENT remarked that the most impressive vote of thanks had already been moved, by the profound attention with which the vast audience had followed the vigorous address, so that nothing remained to be said to express the grateful thanks of the Club to the speaker.