THE WORLD'S FINANCIAL SITUATION
AN ADDRESS DELIVERED BY SIR GEORGE PAISH, KT.
Before the Empire Club of Canada, Toronto,
Thursday, January 29, 1920
PRESIDENT HEWITT in introducing the speaker said,-Whether the mission of Sir George Paish to America is official or otherwise matters little. It is of infinite importance that the knowledge which he possesses of the needs of Europe be imparted as widely as possible throughout this continent. As an Empire Club, we welcome Sir George for what he is, a thorough Britisher. (Applause) We welcome him for what he has done for the Empire, we welcome him for what he is doing, and we welcome him for what we believe he will yet accomplish. To say that there is anxiety as to what may develop as a result of the dire needs of European Countries which have suffered so dreadfully from the war, is to put the case mildly. In dollars, America's balance against Europe is a huge one, but it must not be forgotten that there are other obligations in which the account is not so one-sided. I believe that Sir George Paish's mission will be successful. (Hear, hear) In a recent address Mr. Wm. C. Redfield, former Secretary of Commerce in the United States Government, said:
"We at last saw that the English and French and Italian and Belgian armies were fighting our battles; that it was after all just the modern phase of the old battle of Christianity against Apollyon--of Christ against the Devil. We saw it at last, and we came into the struggle, and, through the Providence of God, the struggle was won and the Devil was chained."
But the waste places were still left, and the idle hands and the ruined homes and empty factories. Are we quitters? ? Do we call our boys home when the physical fighting is done, to say, 'Thank God it is all over. Now we are at peace here; with an ocean on each side we can be perfectly safe. There is nothing for us to worry about. Let us take care of our own affairs, and let them look after their own affairs?' We cannot: we laid our hands to the plough and we must plow the furrow to the very end. Why? We are parents with the other nations, young countries, infants of ours,-Czecho-Slovakia, Serbia, New Roumania, and others beside them. We are the parents of these people; we cannot forsake them; we cannot longer say-we have said it far too long already-'Take care of yourselves; it is no concern of ours.' But once let our people catch the vision of a world we have in part created ourselves, and you may be sure America will respond.
Gentlemen, let us show Sir George the warmth of our welcome .to the Empire Club of Canada. (Loud applause)
SIR GEORGE PAISH
Mr. Chairman and Gentlemen, The welcome you have given me is indeed one that warms my heart; it is one that will go from this gathering over the water, and will warm the hearts of the people at home. At the present time, it is of the very greatest moment that we British people, wherever we are whether we are in Canada or in England or in Australia or wherever we may be should stand together. If we stand together, success and prosperity will carry us and I think, with us, will carry the world to a better time; but if we do not stand together, we will find trouble, maybe, not only for ourselves but for everyone. In no small measure does the salvation of this present situation depend upon the British Race. We have got to do all in our power to help put it right. To the utmost limit of the credit of the British Empire, we have got to help; the situation demands it. And your welcome to me here today shows that you, at any rate, are prepared to do whatever is necessary to save the old world and save humanity from the danger that now threatens it. (Applause) Yesterday I had the pleasure of speaking here to the Canadian Club, and referred to the economic condition of the world. That economic position is a very grave one. The war has disturbed production and distribution. Nations are now producing and are able to sell products that they could not or did not produce and could not sell before the war; other nations are not producing and have no means of buying, unless they are supplied with goods and products on credit. How long it will take to readjust that situation depends upon the amount of energy, on the amount of thought and wisdom, displayed in the re-adjustment; but one thing above all other things that needs to be done at the present time is to look the facts of the situation straight in the face so that every nation may know what needs to be done and will try to do it.
During the past year the nations have been engaged in making peace. In no small degree, that process has retarded the work of recovery. As soon as the war was over steps needed. to be taken to restore production, to get unnecessary expenditure for unproductive purposes down, and to get the world back to an equilibrium of production and distribution. Unfortunately, the work of making peace was much more difficult than anyone had anticipated; and here we are, at the beginning of 1920, in a situation that certainly, even if one uses very moderate language, one must describe as dangerous. But the situation is one that can be overcome, if the statesmen and peoples of the world will only render not only their assistance but give their good-will in helping to solve these problems. Good-will is the foundation of what is needed in order to re-adjust the situation. I do not propose again to go over the ground covered yesterday, except to this extent. The nations that have surplus balances and which will probably continue to have surplus balances, even if everything possible is done to restore Europe's productive power at the earliest moment possible, must be willing to take payment of these balances in securities of one kind or another; and failing securities that are now existing, then some new security must be created which everyone will take. I suggested yesterday that that security, in, case of need, should be a League of Nations Bond which everyone would be interested in, everyone would guarantee, and everyone would accept.
Today I want to speak upon the question of the financial situation. To most of you the financial situation would seem to be more dangerous and more difficult than the economic situation, but in my judgment, it is much easier to solve than the economic. People on the other side of the boundary, and in many other places, are saying that Europe is bankrupt, and being bankrupt, why should we give her more credit-we should only be throwing good money after bad. Now I want to reply to that statement. I want to prove to you that Europe is not bankrupt, and I want to prove to you, particularly, that the Old Country is not bankrupt (loud applause) and that any money which you subscribe for securities to be loaned to Europe and to the Old Country in order to overcome the Exchange difficulty and enable Europe to buy your food and the food of other nations, and the raw material and manufactured goods that Europe needs, that you may be sure that that money will sooner or later be repaid with interest.
Now, what is the situation in Europe? Well, those nations have created an immense amount of debt. The amount is so large that it is almost difficult for a man to take in the figure and understand it. The amount is something like 40,000 millions sterling-an enormous sum but when you come to look at the matter and analyze it, you find that it is not such a great matter after all. Let me tell you what happened in the Old Country so that you will understand what has happened in the other Countries, and how, if we face the situation, we shall be able to overcome the financial difficulty at any rate, whatever may happen to the economic situation.
In England, you know, we have now an annual debt of some 8,000 millions sterling. Of that amount 7,500 millions have been created owing to the war. Well, how has that been created? Where does the money come from that has subscribed that great amount of debt? Well, in the first place, we have sold abroad probably 500 millions sterling of securities-of our pre-war foreign investments. Then we borrowed abroad, probably, another 1,500 millions. We borrowed in America; I dare say we may have borrowed a certain amount in Canada; we borrowed in Argentina, in Japan, in India, a total of 1,500 millions. That shows how we have raised 2,000 millions out of the 7,500 millions; the other 5,500 millions has been raised at home; and I very much wish you to understand that the 5,500 millions that we have raised at home has come out of the income that was derived during the war. Our wealth at home has not been reduced during the war. Our wealth at the end of the war, even on the pre-war basis of prices, was just about as great as it was prior to the war. We have subscribed for 5,500 millions securities during the war out of current income. In normal times, we received about 400 millions a year; but prices have been very much higher during the war and the rate of profit very much greater; the people who had savings have been able to save a great deal more, and the rate of saving has been just about twice the normal. Our income has been more than twice the normal and our savings have been twice normal. Now, an internal debt of 5,500 millions is very different from an external debt of that kind. The interest on it is paid in the country, and that interest is available for the purpose of taxation. In fact, if you consider the matter, already that income is paying a very considerable amount of taxation. Owing to the war, we have had to put up the rate of income tax on all incomes, it does not matter whether it is on the whole debt or otherwise, to six shillings in the pound. We are paying 5% interest on our war debt; but if you will allow for six shillings in the pound income tax, the real rate of interest we are paying is 3Y2 7'o. Well, how are we going to pay the interest on this great debt? Of course, if we were to mairitain our current rate of expenditure, it is obvious that we should have very great difficulty in meeting our current expenditures out of current income. But it is clear that we cannot maintain our current rate of expenditure. The present expenditure of Great Britain, and I will also say of the other portions of Europe, is an abnormal expenditure, due to the fact that we are neither at war nor at peace. In the current year the estimated expenditure of the British Government is not very far short of 1,800 millions gross. If you deduct the grants in aid, sales of war stores, etc., it is less on the total gross expenditure of the British Government at the present time, but it is about at the rate of 1,800 millions. Well, it is quite clear that we cannot maintain that expenditure; nor are we going to; and during the present year plans have been devised for reducing it, and I have no doubt that in the current year that expenditure will be reduced to at least 1,000 millions, that is if we can get peace. It is of the very greatest moment that peace should be restored everywhere in the world where it is possible, in order to enable the world to get to production, and to enable the world to avoid unnecessary expenditure, and, when peace is restored, the expenditure of the British Government will be less than 1,000 millions sterling. Now, it would seem that we are raising taxation in England to the extent of over 1,000 millions sterling. The estimated revenue for the current year is, I believe, something like 1,050 millions sterling from taxation. We are expecting another 200 millions from the sale of war stores, or we were. If necessary, we -can raise taxation in England of 1,000 millions sterling a year. We do not want to do so; but, if necessary, we can.
Now, how can it be avoided? If we have to continue to raise 1,000 millions sterling, it is obvious that the income tax will have to be higher than six shillings in the pound. We are raising that great sum of money at the present time, in addition, by the War Profits Tax. In the current year that is expected to bring in the sum of 300 millions, and of course, when the war is over and trade gets back to normal, those excess profits should disappear; they will have to -be made good by other forms of taxation, and that may mean, unless we get our expenditure down further, that we shall have to impose a ten shilling income tax; this we wish to avoid if possible.
But there is another plan for avoiding it; of course there are two plans if I may say so. If we were living one hundred years ago, we should not think of putting on income tax; we should think of taxing all kinds of necessaries. We should put a big tax on wheat, upon matches, upon-I need not describe it-because, if you remember, after the Napoleonic war, a man was taxed, from the very moment he was born until the very moment that he died, on everything that he consumed and everything that he did-on his house, windows, chimneys, and everything else; but now that is impossible. This high cost of living is already having a most serious effect upon the poor people of Europe and upon the poor people of England, and it is not possible to increase the cost of living further by indirect taxation upon necessaries; therefore, that must be ruled out of account, especially having regard to the political conditions of today. The real alternative, the real remedy for the present situation, is whether there shall be a high rate of income tax or a levy upon wealth.
Now let us look at the matter of the levy upon wealth. I would ask you to note that already this matter is being discussed in Germany, in fact more than discussed. Bills have been introduced in the Reichstag for imposing a levy upon wealth made during the war, and a second levy upon pre-war wealth. In Germany, the levy upon war wealth runs up to nearly 100%; upon pre-war wealth, it is upon a sliding scale, but on the great incomes it runs up to over 50%; and Germany expects to be able to redeem a good deal of her debt by these methods. While I do not for a moment desire to emphasize the German plan, it seems to me that the very high rates, which have been suggested there, will prevent the full effect of such a levy being realized. Every possible means will be found for trying to avoid the taxes, and that is one reason why wealth is trying, in every possible way, to escape from Germany at the present time.
If the idea of a levy upon wealth is accepted in England (of course it is only now being discussed, as you see, and is not by any means accepted, it may be that the income tax will be accepted instead, a different proposal. In the first place, it is clear that the wealth made during the war has been ii very large sum-something like 5,500 millions sterling. The idea is that if the half of that were taken in as revenue, it would be reasonable. It would leave the people who had made wealth with just about the same amount, as they would have had if there had been no war, and they would have no reason, therefore, no just reason, to complain. If you think for a moment that our soldiers were away in the trenches, and for the most part the British soldiers received only a shilling a day, bearing the heat and burden of the day without any opportunity of sharing in the great profits that were being made at home, you will realize how strong is this claim for a levy upon war wealth. (Applause)
While the war was on, I went out to our soldiers in order to discover what they were thinking about, what their views were; and I also went to tell them that, from the economic side, the war was won--this was in the Spring of 1918---and that the only thing that needed to be done was to hold the fronts, so that the hope of the enemy might be destroyed, and they would immediately give in. The war on the economic side was won in the Spring of 1917. (Applause) The German people were starved in the winter of 1916-1917. They knew it all winter; for they had to live on turnips for a greater part of that period. We knew that the war was won; but they went on fighting in the hope that a military success would overcome their economic defeat. I went out to tell the soldiers the economic side, in order to let them know that the victory was with us. During my visit the soldiers were allowed to ask me questions, and in a great meeting of soldiers one question was: What did I propose to do about these great profits that were being made at home while they, the soldiers, were out there fighting and receiving what they could get? I had heard a great deal about the profits that were being made at home, and my reply to the soldiers was that, if there had been a great deal of profiteering and that if great profits had been made, why, when the war was over, we must hold an enquiry and, if it was proven that these profits had been great, unduly great, then we must get some of them back. When I came to the part of my answer-"we must get some of them back"-the soldiers nearly took the roof off. (Laughter)
Now, you will understand the strength of this demand at home for a levy upon wealth made during the war. It is a demand which, as far as I can now see, we cannot contest; because, unless we accept and agree with it, it will mean that we must tax the people in order to pay the interest upon that wealth that has been made during the war. The people who will have to pay those taxes, directly or indirectly, will be the soldiers who defended the people at home while they were making that wealth. It seems to me that that would be exceedingly unjust'. (Loud applause)
Now what applies to Great Britain applies, in an equal manner, to all other countries. Most of the new loans, subscribed during the war, have been subscribed for out of the profits or savings made during the war by people who were not at the Front. It is only fair that they should give back a part of those profits, a part of those savings, in order to get the debt down to a reasonable sum, and that the taxation of the countries in future should not be unduly burdened. (Applause)
There is another factor. The changes wrought by this war are bringing great wealth to the people who never expected to have great wealth. Take houses, buildings, factories, machinery. At the present time in England it costs £600 to £700 to buy a cottage which before the war cost about £200 or £25C. Even when we look forward to reduction in cost, houses in England in the future will cost at least twice as much as they did before the war. The holders of existing property will benefit to that extent. Their wealth will be practically doubled by no exertion of their own, but by pure accident of war. Having regard to the fact that our soldiers defended that property from the enemy, defended the wealth of the country from the aggressor, it is only reasonable that that wealth should pay its fair share into the national treasury for the reduction of the debt. (Applause)
Then, having made those few levies upon wealth accumulated during the war or obtained by unearned increment, there would be the wealth accumulated ,before the war. The amount of wealth in Great Britain before the war was some 16,000 millions sterling. Of that, 12,000 millions sterling was at home, and 4,000 millions sterling was represented by foreign and colonial investments. I am glad to say that at the present time, even at pre-war prices, our wealth is almost, if not quite, as great as it was then. (Applause) Our home wealth is certainly quite as great. Our foreign wealth would be as great, if our new investments were as good as those we had before. During the war Great Britain has financed her Allies and Dominions, and has provided them with nearly 2,000 millions sterling of credit. Of that amount some 600 millions has been loaned to France; another 500 millions has been loaned to Italy, and a third 600 millions has been loaned to Russia; the balance we have loaned to other countries. If you add these great investments on to our pre-war investments, you will find that we now hold some 6,000 millions of investments, less the American and Canadian securities we have sold, bringing the net amount down to 5,500 millions. Against that great foreign investment, we borrowed abroad 1,500 millions. (Applause) Leaving alone the great internal wealth of Great Britain, our foreign investments themselves are sufficient to give adequate margin for 1,500 millions of foreign loans. But, of course, these new investments are not quite as good as we should like to see them. Nevertheless, if all goes well-and by that I mean if the statesmen and peoples of the world take the right action-these investments will ultimately be good.
Probably you will say that our new investments in Russia are a very doubtful quantity, but one has to remember that Russia is still one of the greatest of Countries, one of the wealthiest countries in the world. It has a population of something like 180 million people, and all they need is good government and law and order that their great wealth may be developed as it never was developed before. In the days to come, I am convinced that we shall see a great and mighty Russia, probably greater and mightier than ever before; but a free Russia-(applause)--a free Russia in which its people will derive incomes commensurate with their labour. If you think for a moment, Gentlemen, that in the past the wages of the agricultural worker were about three roubles or six shillings a week, and the wages of an industrial worker in Russia about ten shillings a week, you will realize that the conditions there were not what they ought to be; and, with the suffering that Russia has gone through during this war, it is not surprising that a cataclysm should occur; indeed it would have been a miracle if such an occurrence did not take place. But, in the days to come, what is now happening will have passed away, and we may look forward to an orderly Russia: Why do I say that? Because Russia needs help from outside. Russia must do the thing that will restore to her the good-will of the world, and the world is willing to give its good-will if she will re-establish constitutional government, if she will re-establish democratic government, if she will re-establish a government with which other nations of the world can have close and friendly relations. When one knots how great the need of Russia is, one knows that, sooner or later, a way will be found out of the present difficulty.
Perhaps I might mention just here that the financial and economic condition of Europe cannot be fully reestablished until the Russian question is solved. Russia needs manufactured goods, and Europe needs the food and raw materials which Russia could provide. It may not be possible for you over here, or America, or Argentina, to supply all the things that Russia could supply. Indeed, the world, in a sense, is in a very great danger while Russia is out of the running. In normal times, if there is a good crop here in America and Canada, there has been a bad crop in Russia; but if they have had a poor crop here, they have had a good crop in Russia, and the two are balanced. Now, if there are bad crops on this side, there are no compensations; and we in Europe are subject to a very great danger. Therefore we must get Russia restored in order to restore Europe. When one thinks of all these things, one realizes that, sooner or later, Russia will be restored, and with the money she owes to us, the money invested in Russia will be good.
When one comes to our investments in France, no one who knows the French people can doubt that they will, sooner or later, pay every Franc, every Pound, every Dollar that they owe. (Applause) The question is not how much we shall demand from France, but how much we shall assist France. (Applause) As matters now stand, France is relying upon receiving a great indemnity from Germany. Germany must pay all she is capable of paying. But when we look the facts in the face, we must realize that the amount that Germany can pay is a limited one. Why? Germany has lost the good-will of the world. It will be exceedingly difficult for Germany to sell her products in the world for many a long year, and unless Germany can sell her products, how can she pay France? It is not possible. Again, Germany cannot pay France unless she has command of raw material. At the present moment Germany has no credit, and no one is willing to supply her with credit, and the result is that Germany, at the present time, is in a condition of wretchedness and misery almost indescribable. Their misery is so great that at any moment we may hear that Berlin is in a blaze, that from one end of the country to the other there is red revolution, and, of course if that takes place, the hope of France ever receiving anything from Germany will be exceedingly remote. Under these conditions, it is of the very greatest moment that we should face the situation and understand and ascertain how much Germany can reasonably be expected to pay, and how much we shall allow her to pay-because how much she will be able to pay will depend upon how many 3 German goods the world will be willing to buy-and if we are not willing to buy, then France cannot get payment.
When one looks at the whole situation, one realizes that the peoples of the world will not readily understand their responsibilities for the solution of this financial problem. They will understand that the Germans have done things that they ought not to have done, and it will be exceedingly difficult for anyone to induce the peoples of the world to buy German goods. Therefore it will be very difficult, indeed, for Germany to buy raw material or the food that she needs for the maintenance of her own people. It will be still more difficult for her to buy sufficient raw material and food, in order that she may send abroad not only all the goods she needs to pay for the food and raw material she requires for her own people, but to pay the indemnity and the reparation that France is expecting her to pay. Now, what does that mean? That means that, in proportion as we are unable to get the sums out of Germany that France is hoping for, sums that are necessary to restore those devastated districts, the rest of the world must come to the help of France. We cannot allow France to suffer in the way she will suffer unless we help her to restore those devastated districts. Germany must pay all that it is possible for her to pay; but, when that is done, there will still be a balance, (as far as one can see) that France will not be able to recover from Germany, and the rest of us will probably have to come to the help of France. When that situation is realized and that time comes-we have to wait for it to develop-then, I am not without hope that the British people will say to their gallant French Ally: "You fought on our side in the war; you cannot get reparation from the enemy who ought to make this reparation; it is physically impossible: we will forgive the debt that you have incurred to us." (Loud applause) I think when that time comes our friends on the other side of the boundary will act in a similar way. (Hear, hear) This would mean-and I am sure it will come-that France, in the course of several years will be re-established, that her devastated districts will be rebuilt, and you will again have a prosperous France able to pay her way, to pay for all the goods she needs, either in services or in her own goods. Certainly, you will never have a bankrupt France. (Applause)
When you come to consider the other nations,-our investments in Italy,-it may be that something of the same kind will have to be done: we may have to forgive Italy the money we have loaned to her. Of course that cannot happen until the nations of Europe are pulling together to re-establish the world, to re-establish the foundations of prosperity to the world which have been so sadly shaken by this war. These things cannot happen, of course, if we are all pulling against each other. We must pull together; we must even be generous to each other; and I am sure that the world, realizing the danger, will be generous one to the other, and that the nations that have too great a burden will be assisted to bear their burden. In any case, I am convinced that not one nation in Europe -I might perhaps exclude Austria, but even I am doubtful about Austria--will be allowed to become bankrupt. We must at this time stand together; and we in Great Britain realize this; we intend to do our very best to preserve every nation in Europe from bankruptcy, realizing that our own well-being is at stake and that the world's well-being is at stake. (Applause)
By levying upon wealth made during the war,-in the main wealth which has come from unearned increment, which has come as a result of war,-and a moderate levy upon pre-war wealth, it will be possible to discharge practically the whole of the internal debts of Europe, that is, if the nations take that view. As far as I can judge of matters, and I have taken a great deal of care in investigating that is the view of the democrats of Europe. They intend to do that; they intend to decide the whole of their debts in a proper and right manner; they intend to reduce their expenditures to a point that can be met, without unduly burdening the future; they intend to start on their new career in such a way that their own people and the people of all nations may continue to make the progress they made in the past. That means that, in the course of a few years, Europe will be re-established. I want you to realize that, before the war, not only did Europe meet all of her expenditure out of income, but every year she placed, at the service of the rest of the world, nearly 400 millions sterling of Capital. We, in Great Britain, loaned to the world, several years before the war, about 200 millions a year of new money; every year France loaned over 50 millions a year; Germany loaned some 500 millions a year; Belgium, Holland and Switzerland, Norway, Sweden and Denmark all loaned smaller sums. I have no doubt that, if the present situation is handled aright, Europe will again be in a position to resume her task of financing works of construction that are needed by the whole world for its progress.
May I here just indicate how it is that the world has made such wonderful progress during the last century, more particularly the last 60 or 70 years, in order to show the line which must be pursued in future if the progress is to be resumed? I want you to think that, only about two generations ago there were practically no railways in the world, and that, in those two generations, Great Britain has supplied the greater part of the money for building the railways of the world. Without those railways it is obvious that the wealth of the world could not have grown in the manner it has grown. Think of America; America could not be the country it is today without its railways. Before the war, Great Britain owned no less than 2,000 millions sterling, invested directly or indirectly in the world's railways outside of Great Britain. France had a considerable sum, and other countries had a considerable sum.
Now, how about the future; what is to happen? You here in Canada have got your railways; you have got a good system of railways; you are ready to go ahead; I think you are going ahead; I have no doubt that you are going ahead. In the next few years you ought to get a very large number of immigrants from Europe to populate those western districts of yours. The world needs your food, and needs that farms should be created in your western provinces more rapidly than ever. The world is indeed short of food today. Europe will never again produce such food as it did in the past, at any rate not cereal food. Roughly speaking, cereal production in Europe has gone down, owing to the war, about 40%. Before the war, Europe needed to import 1,000 million bushels of grain, of which 400 million bushels came from Russia. Today, Europe needs not far short of 3,000 million bushels of grain, and there is not nearly sufficient to supply the need. How quickly that need will be supplied will be due in large measure to you Canadian people. You have the opportunity of developing your agricultural resources more rapidly than any other nation. All you need is population, and I think you will get that population. The other countries need railways, especially Russia. We cannot have a great nation like Russia in the condition of poverty which it has been in hitherto. Russia needs railways; for that great Country there are very few railways. We must help, and perhaps you too may help, and America may help, but we must supply the Russian people with railways in order to develop that country. Then, there is China; then, there is South America; then, there is Australia. The amount of wealth which the world can produce is infinite. If all goes well, I have no doubt that the wealth of the world will double in the next 20 or 30 years; but it will depend upon what you do; upon what we do, what we all do at the present time. Can we reestablish Europe so that it not only becomes self-supporting but again provides the means of developing the sparser populations of the world? I think we can. I think we can look forward to far better times for the world, and for each country in the future than those countries ever had in the past. But it is of the very greatest moment that we should realize that, in order to accomplish this work, in order to get through to the new period of prosperity, and greater prosperity than ever, we should now stand together, work together, act together, in such a manner as we have never acted or worked together before. Especially is it necessary for the members of the British Empire to pull together and to think together, to look forward to ideals, to stand for ideals which in my opinion made .the Empire great in the past and will make the Empire still greater in the future, (Loud applause, the audience rising and cheering)
The President expressed the thanks of the Club to Sir George Paish for his address.